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5 Things That Can Hurt Your Credit Score

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Canceling a card is an easy way to hurt your credit because it will instantly reduce your total available credit.

2. Canceling credit cards

If you are worried about overspending or simply have a credit card that you don't use, you might think canceling it is the responsible thing to do. Unfortunately, canceling a card is an easy way to hurt your credit.

That's because getting rid of a credit card will instantly reduce your total available credit. If you're carrying a balance on other cards or even if it's only until the balance is due and you pay it off in full the amount of available credit you're currently using (your credit utilization ratio) goes up. It's generally recommended that you keep your utilization under 30%,2 though closer to 0% is ideal.

3. Running up a balance even if you pay it off every month

If you sometimes make a big ticket purchase on your credit card or tend to run up the balance every month, it can harm your credit score even if you pay the entire balance by the due date. The reason? Your balance is usually reported to the credit bureaus on a different day than your payment due date.3 That means it can look like you've maxed out your card even if the balance is back to $0 by the payment date. At 30% of your total score, "amounts owed" is another important factor to keep an eye on. To avoid having a high credit utilization reported, try paying down your balance twice a month instead of just once. You can also call your credit card issuer and find out when your statement closing date is so you can pay down the balance before then.

4. Settling a debt

If you get in over your head with debt, you might need to resort to debt settlement to climb back out. This involves coming to an agreement with your creditor to pay a lump sum that is less than what you actually owe and calling the deal done. Having a settlement officially noted on your credit report will cause your score to fall. The significance of the impact will depend on the current condition of your credit, the size of the debt, and other factors. Though there's not much you can do to prevent this ding to your score, in many cases, debt settlement can ultimately help your credit by getting you out of the endless cycle of missed payments and loan default. That settlement will remain on your credit report for seven years,4 though its impact will lessen over time.

5. Applying for new credit

Finally, be careful about applying for too many credit cards or loans within a short period of time. Every time you do, a "hard inquiry,"5 is added to your credit report. An inquiry here and there has little to no impact on your credit score, but several within a short time frame can look like a red flag to creditors that you're desperate to borrow money. The exception to this rule is if you're shopping around for a mortgage or auto loan. The credit bureaus understand that you might need to send in several applications to find the best deal. If your inquiries are limited to a 14- to 45-day window, depending on the scoring model, they're lumped together as one. Otherwise, try to minimize the number of new credit applications you submit within a two-year time frame

Important disclosure information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. Gerri Detweiler, "How Much Will One Late Payment Hurt Your Credit Scores?" Credit.com, https://www.credit.com/blog/2018/07/how-much-will-one-late-payment-hurtyour-credit-scores-58676/, Published July 13, 2018, Accessed March 10, 2020. Back
  2. Latoya Irby, "What Is a Good Credit Utilization Ratio?" The Balance, https://www.thebalance.com/what-is-a-good-credit-utilization-ratio-960548, Published February 10, 2020, Accessed March 10, 2020. Back
  3. Latoya Irby, "Credit Card Account Statement Closing Date," The Balance, thebalance.com/credit-card-account-statement-closing-date-959982, Published January 12, 2020, Accessed March 10, 2020 Back
  4. Jennifer White, "Will Settling a Debt Affect My Credit Score?" Experian, https://www.experian.com/blogs/ask-experian/will-settling-a-debt-affect-my-score/, Published October 16, 2019, Accessed March 9, 2020. Back
  5. Tim Devaney, "Hard and soft credit inquiries: What they are and why they matter," Credit Karma, https://www.creditkarma.com/advice/i/hard-credit-inquiries-and-softcredit-inquiries/, Published July 26, 2019, Accessed March 9, 2020. Back