4 Weird Ways You Can Drag Down Your Credit Score

Seems like a smart financial decision, right? While paying for everything with cash can keep you out of debt, it can also destroy your credit score. Your score is based on your credit history, which is basically how responsible you are at paying back loans or paying your credit card on time. If you have no history of loans or credit card use, there is nothing to base your credit score on. People who don’t use credit cards or have never taken out a loan generally have very low credit scores. If you want to raise your credit score, make sure that you have a credit card account open and are actively using your card.

If you are afraid that getting a credit card will cause you to go into debt, make sure you know how to utilize a credit card properly. If you pay your balance off each month, you won’t ever be charged interest or late fees, which means that you won’t be going into debt. In addition, if you pick a credit card that offers great perks like cash back, you can actually make money from your credit card. Here is a good list of credit cards with great rewards.

One of the biggest factors of your credit score is how you are utilizing your credit. If you have a high balance on your credit cards, it shows that you aren’t handling your credit very well. This factor is called the credit utilization ratio. It’s calculated by dividing your overall credit limit with your overall balances. So say your overall credit limit for all your cards is $10,000, and you have a balance across all cards of $5,000. In this case, your credit utilization ratio would be 50%. Credit experts advice to keep your credit utilization ratio below 30%.

One easy way to keep your credit utilization ratio high is to keep your credit limit high. One way to do this is to avoid canceling credit card accounts. If you have a $10,000 overall credit limit (and the $5,000 balance) and you cancel a credit card with a $2,000 credit limit, your overall limit is now only $8,000 and your credit utilization ratio goes way up. You can also raise your credit score by paying off a large chunk of your balance to lower your credit utilization ratio.

One way to really get hit with a credit score penalty is to allow an account to go into collections. Collections accounts can drag your credit score way down. This can happen from almost any account that you have open. If you don’t pay your utilities, they can send your account to collections. If you don’t pay your cellphone bill. If you skipped out on the last month’s rent at your last apartment. Any bills that you don’t pay can be sent to collections, so make sure you are taking care of all those bills.

If you closed an account without zeroing out a balance, those accounts can still be sent to collections. Many people have collections on their credit report without even knowing it. Check your credit report frequently to make sure you don’t have collections listed on your report.

Any time you have someone make a hard pull on your credit report, it can lower your score. If you are getting financing for buying a car, renting an apartment or getting approved for a loan, your credit report will probably be pulled to determine your trustworthiness. Pulling your report too many times within a short time frame (like if you rent an apartment, get a loan and apply for a credit card within six months) can hurt your credit score.

Afraid to check your credit report? You checking your own credit report is not a “hard pull,” which means it won’t count against your credit score. This also applies to any companies that provide credit monitoring or credit score and report updates, such as Credit Karma.