From the interest rate you are offered on a credit card to your ability to qualify for a mortgage, your FICO® score can have an impact on your everyday financial life. Your FICO® score is a numerical calculation of your credit report calculated by Fair Isaac Corporation. Scores range from 300 to 850 points and are calculated based on your credit history.
Here are some ways you might be hurting your score, according to certified financial planner, Sarah Halpin:
1. Paying Bills Late:
The most significant impact on your score is whether you have a track record of paying bills on or before their due date. A utility or cell phone bill paid more than 30 days late can have a negative impact on your score. A missed hospital emergency room bill or missed parking fines that wind up as collection accounts on your credit report can have an impact for years. Enroll in automatic payments and/or set up email or text payment reminders to make sure your payments stay current.
2. Maxxing Out Your Credit Card Limit:
When you stretch your credit limits to the max, you’re negatively affecting your credit utilization rate. This measures the total amount of available credit compared to your balances. For example, if your credit card balance is $950 and your credit limit is $1,000 then your credit utilization is 95%. Focus on paying down debt and keeping your credit card utilization to below 50%.
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3. Saying Yes to a Store Credit Card
If you are spending a sizeable amount of money it can be tempting to say yes to a store credit card offer in exchange for a 10% - 15% discount on your purchases. Retail store credit cards nearly always have much higher interest rates and multiple credit inquiries over a number of months and these store cards lower credit limits can have a negative impact on your credit score.
4. Decluttering Your Wallet
Closing unused credit cards is not a short term strategy to raise your score. Depending on your total available credit, closing a credit card account with a high credit limit could actually hurt your credit score, particularly if you have high balances on other cards or loans. Make sure you focus on paying off balances versus closing cards and moving debt around.
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