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How Do Your Actions Affect You? 7 Ways to Destroy Your Credit Score

Credit Karma
Posted on Oct 6, 2010

You know by heart the key points—pay on-time, use credit wisely, have a diverse mix of credit—to build healthy credit and watch your credit score climb. But do you know the big what not to-dos to avoid at all costs, and how they will affect you?

We asked 4 Credit Karma users, ranging from excellent to poor credit, to use the Credit Simulator to predict how much their score would be negatively impacted by the following financial mistakes. Check out how drastically your own credit score range would be affected by the following scenarios:

Credit Score
Close your oldest credit card
Increase balances by $5,000
Allow one monthly account to become past due (30 days)
Allow one monthly account to become past due (90 days)
Have an account go into collections
Foreclosure
Excellent – 785
785
775
747
727
751
710
Good – 721
676
656
697
688
676
668
Fair – 660
653
636
619
617
614
657
Poor – 558
NA
556
NA
NA
557
528

Due to the way credit score models are algorithmically calculated, higher credit scores are disproportionally affected by negative financial actions. For example, foreclosure will knock 30 points off a poor credit consumer, while foreclosure would blast 75 points off an excellent credit consumer’s credit score. The higher your credit score, the harder you fall.

The lesson here is to avoid getting these marks on your credit report at all costs. Your credit score can’t afford any slip-ups; even one late payment will damage your credit. Here is Credit Karma’s blacklist of destructive habits that bomb your credit score and will upset your chance at future financial opportunities.

 

1)      Declaring bankruptcy
2)      Foreclosure and short sale
3)      Paying late and defaulting
4)      Max out your credit card or run up large balances
5)      Closing your oldest credit card
6)      Applying for too much credit
7)      Cosigning

Look out for potential credit pitfalls as diligently and proactively as you work to score points on your credit score.

Have a question for Credit Karma? Post it in the comments or to our Twitter and they’ll answer it in next week’s post!

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  • Casey

    Scary how one mistake could take you credit score from Excellent to the low end of Good! Better make sure I don’t make any of these mistakes.

  • Katie

    Why is cosigning a negative thing? What if the cosigner has better credit than you?

    • Anonymous

      @Katie Thanks for your question. The smart folks at CreditKarma are going to come back and give you a much more intelligent answer than I ever could. Should be in the comments later today, please check back. Cheers, Caroline Waxler, LearnVest’s Chief Content and Community Officer

    • CreditKarma

      Hey Katie! Credit Karma here!nnWe list cosigning as a destructive habit because despite its good intentions (i.e. help someone build credit or get a loan/credit they couldnu2019t otherwise get without cosigner), it can do major damage to both parties when mishandled. When you cosign for a loan or credit card, anything that happens to that account will affect both the cosigner and cosigneeu2019s credit score.nnFor example, if you are a cosigner to someoneu2019s credit card and they begin defaulting on payments, the derogatory credit marks will show up on the cardholderu2019s credit report as well as yoursu2014even though you havenu2019t used the card or did anything more than sign on the dotted line. Conversely, if a friend or family member cosigns for you and you start paying late, youu2019ll be burdened with the fact that you are ruining both credit scoresu2014yours and the cosigner who helped you out.nnWe strongly donu2019t recommend it in most cases because weu2019ve heard many consumer stories of cosigner agreements going bad. You canu2019t remove these delinquent marks from the cosigner and the cosigneeu2019s credit reports or reverse the damage done to the credit scores. If youu2019re going to sign on the dotted line, both parties should be prepared to stay on top of their finances or else risk their credit scores.nnHope that’s helpful! If you have more questions, please visit us at our Facebook page, http://www.facebook.com/CreditKarma, and let us know. Thanks!nnCheers,nJustine @ CreditKarmanhttp://www.creditkarma.com/nn

  • liz

    Can someone please explain why closing a credit card account negatively affects your credit?nI have 5 credit cards. I pay in full every month. I find I am only using 3 of them and would like to close the other 2. But I am going to be leasing a new car in January and am afraid closing them will negatively affect my score. What do you recommend?

    • CreditKarma

      Hey Liz! Credit Karma here!nnClosing a credit card can negatively affect your credit because:nn1) It could shorten your credit history, especially if you close one of your oldest accounts. Your credit history makes a big impact on your credit score.nn2) It will affect your total credit limit and credit utilization rate. A significant factor of your credit score is your credit utilization rate, which is a measure of how much of your total credit limit (all of your credit cards’ limits) you are using. You are supposed to keep your credit utilization rate under 30%. When you close credit card accounts, you will lower the amount of total credit you have available, which will raise your credit utilization rate.nnIf your other two credit cards are costing you in an annual fee or you owe no balance on them and do not plan to use them, you might consider closing it. However if they have a long credit history or closing them will considerably impact your total credit limit (and you won’t be applying for new credit) then you might consider keeping them open by charging a small purchase to them and paying it off in full each month. That way, the card remains active and contributes positively to your credit score, without accruing debt.nnIt’s a matter of weighing the pros and cons of the details of your particular accounts. If you want, you can check out our Credit Simulator on Credit Karma’s website, which allows you to simulate what your score would look like if you closed a credit card or other financial actions.nnGood luck!nnCheers,nJustine @ CreditKarmanhttp://www.creditkarma.com/

  • Megan

    I’m a 21 year-old college student and I’ve already fallen into serious bad debt that has really affected my credit score (credit card & medical bills). I have since repaid all bad debt and I have federal loans for school. Is there anything I can do to start improving my score before I begin paying back my school loans next year? I’m just worried that I have already destroyed my financial future by not being able to pay bills when I was 18.