What Habit Lowers Your Credit Score EverFi?

Your credit score plays a crucial role in securing loans, credit cards, and rental agreements. A lower score can lead to higher interest rates or outright rejections, making it essential to recognize the behaviors that negatively impact it.

Many financial habits can unintentionally harm your credit score. Identifying these mistakes early can help you maintain strong financial health.

Late or Missed Payments

Payment history is the most influential factor in a credit score, accounting for 35% of the total calculation. Even one late payment can cause a noticeable drop, particularly if the account was previously in good standing. Lenders report missed payments to credit bureaus once they are 30 days overdue, and the longer the delinquency, the greater the impact. A 60- or 90-day late payment signals higher risk, making future credit approvals more difficult.

Late payments remain on a credit report for up to seven years, affecting loan approvals, interest rates, and even job applications in some industries. Some lenders impose penalty APRs, significantly increasing borrowing costs. For example, a credit card with a 17% interest rate could jump to 29.99% after a missed payment, making it more expensive to pay down balances.

Automating payments or setting up reminders can prevent accidental delinquencies. If a payment is missed, making it as soon as possible can minimize damage. Some creditors offer grace periods or one-time late payment forgiveness for accounts with strong histories. Contacting the lender to negotiate a resolution may prevent the late payment from being reported.

Consistently Maxing Out Credit Lines

Using a large portion of your available credit regularly can lower your credit score. Lenders assess your credit utilization ratio—the percentage of your total credit limit in use—to determine how responsibly you manage debt. A high utilization rate signals financial strain, making creditors view you as a higher-risk borrower.

For example, if you have a credit card with a $5,000 limit and consistently carry a $4,500 balance, your utilization rate is 90%. Experts recommend keeping this below 30%, as exceeding that threshold can lower your score. A utilization rate above 50% can cause a noticeable drop, even if payments are on time.

High balances can also affect future borrowing. Lenders reviewing applications for mortgages, auto loans, or credit cards may see excessive utilization as a sign of financial instability, leading to lower credit limits, higher interest rates, or denials. Some card issuers conduct periodic reviews and may reduce credit limits if they perceive a borrower as overextended, further increasing utilization percentages.

Closing Older Credit Accounts

Length of credit history plays a role in maintaining a strong credit score, and closing older accounts can shorten it. Credit scoring models consider the average age of all open accounts, and removing a long-standing credit line lowers that average. A shorter credit history makes it harder for lenders to assess long-term borrowing habits.

Closing an older credit line also affects overall credit availability. If an account is closed, the total credit limit decreases, which can raise the credit utilization ratio if there are outstanding balances on other cards. For example, if a person has a total credit limit of $20,000 and closes a $5,000 account, their available credit drops to $15,000. If they carry a $6,000 balance, their utilization jumps from 30% to 40%, which can negatively affect their score.

Certain accounts carry additional considerations. Closing a credit card with a long history of on-time payments removes a positive record from ongoing credit activity. While closed accounts in good standing remain on a credit report for up to 10 years, they no longer contribute to active credit use. Some issuers may also automatically close inactive accounts, so using older cards periodically can keep them open.

Repeated Credit Applications

Submitting multiple credit applications in a short period can raise concerns among lenders and lower your credit score. Each time a financial institution conducts a hard inquiry to assess creditworthiness, it leaves a mark on the credit report. While a single inquiry has a minor effect, frequent applications suggest increased reliance on borrowed funds, making creditors hesitant to approve new credit.

Lenders may interpret repeated applications as a sign of financial distress or an urgent need for liquidity. This can lead to higher interest rates or denials, particularly for unsecured credit lines. Unlike soft inquiries, which occur during background checks or pre-approvals and do not affect scores, hard inquiries remain visible for up to two years, with their strongest impact in the first 12 months.

Ignoring Credit Report Issues

Errors on a credit report can go unnoticed for years, quietly damaging a credit score and making it harder to secure favorable loan terms. Many consumers assume their reports are accurate, but mistakes such as incorrect account statuses, fraudulent activity, or misreported late payments can significantly lower a score. Regularly reviewing credit reports helps catch these issues early.

Disputing inaccuracies is a straightforward process but requires diligence. The Fair Credit Reporting Act gives consumers the right to challenge errors with credit bureaus, which must investigate and correct any verified mistakes. If a lender incorrectly reports a missed payment or an unauthorized account appears, submitting a dispute with supporting documentation can lead to removal. Identity theft can also result in fraudulent accounts being opened, further damaging credit standing. Monitoring services can provide alerts for suspicious activity, allowing for quicker resolution before significant damage occurs.