4 Moves That Can Lower Your Credit Score

4 Moves That Can Lower Your Credit Score


You may be damaging your score without knowing it.

By Lisa Gerstner, Staff Writer

From Kiplinger's Personal Finance magazine, September 2011

Most people know that paying bills late can play havoc with your credit score. But not every move that shaves points from your credit score is so obvious.

1. Charging a big balance to a store card. You’re tempted to buy thousands of dollars’ worth of furniture or appliances and charge it all to a store credit card that doesn’t require payments for six months or even a year—and sometimes longer. But debt that sits untouched could drag down your score, especially if the balance is near the card’s limit, says John Ulzheimer, president of consumer education at SmartCredit.com. That’s because your credit-utilization ratio—the amount of debt you have relative to your credit limits—is calculated for balances on individual cards as well as overall. In addition, store cards tend to charge steep rates, so if you don’t pay the balance before the interest-free period is over, you will rack up big charges.

2. Trashing a parking ticket. Parking and speeding tickets, library fines, and other dues to the government left unpaid won’t go directly to your credit report. But if they are eventually reported to a collection agency, they could damage your score. That goes for anything that could go to collections, such as unpaid rent and medical bills. And even if you pay up, collections will appear on your report for seven years.

3. Stuffing your wallet with cards. If you’ve had a handful of cards for years, they won’t hurt your score. But if you open several new accounts in a short period, your score is likely to take a hit, and you may not benefit immediately from expanded credit limits.

4. Transferring a balance to a new card. The inquiry on your report from the new lender may shave a few points from your score, but the real problem is what you do with the old account. If you close it, your overall credit limit could go down, and your credit-utilization ratio will increase if you have debt on any remaining cards. Your best bet: Leave the old account open but keep a zero balance.