It’s totally normal to feel confused when you’re first trying to understand all the factors that impact your credit score and credit health. The good news is, raising your score could be simpler than you might think. Understanding how your credit score works allows you to take control and start using credit to your advantage, which may help boost your financial confidence and well-being.
Here are five common credit mistakes people make, plus simple strategies to help you avoid them, keep your mind at ease, and boost your score over time.
- Maxing out a credit card
- Closing an old account
- Applying for too many things in a short amount of time
- Not using credit at all
- Only using one type of credit
The highlights:
- Outside of missing payments, maxing out—or carrying a high balance on—a revolving account like a credit card is one of the key things to avoid for a high credit score.
- Other common credit mistakes you can avoid include closing old accounts, applying for multiple loans or lines of credit in a short time span, and not expanding on or diversifying your credit history.
- If one of these factors has impacted your score, it’s OK. Your credit score can recover—and even reach all-time highs—by following simple best practices.
1. Maxing out a credit card
Credit cards come with specific limits on how much you can spend with them. But when you spend enough to get close to that limit, it can impact your score and make it hard to get out of credit card debt.
How it affects your score: Lenders may use slightly different credit scoring models, but most credit scores weigh the same factors. Typically, your credit utilization ratio accounts for nearly 33% of your credit score. It’s influenced by the amount of credit that’s available to you in your revolving credit accounts and how much of that credit you’ve used. A couple examples of revolving credit accounts include credit cards, a home equity line of credit, or a business line of credit. The closer you get to your credit limits on those accounts, the higher your credit utilization ratio is—and the more it can impact your score.
What you can do: Keep an eye on your statements and spending habits to ensure your credit utilization rate stays low. Although an occasional big purchase on a card can temporarily lower your credit score, your score should recover as soon as that purchase is paid off. And if you currently have high balances on your credit cards or other lines of credit, know that you can raise your credit score significantly by paying them off.
“Credit card debt is the kind of debt we want to be the most careful with. The interest rates are considerably higher than they are with other kinds of debt. And we’re typically going into debt for something that goes down in value.” –Brian Ford, Head of Financial Wellness, Truist
2. Closing an old account
Plenty of people have misused their credit card and decided they’re “done” with it—they’ll put it through the shredder and close their account. But this won’t help to raise your credit score, especially if it’s an account with a positive payment history that has been on your credit report for several years.
How it affects your score: Another portion of your credit score—typically up to 15%—is determined by the average age of your credit accounts. The longer you maintain an account without missing a payment, the more it can benefit your score.
Closing an old account can also impact your credit utilization ratio. Any line of credit you maintain also adds to the total amount of credit that’s available to you, which gives you more room to spend without significantly impacting that number—and your score.
What you can do: Even if you decide to stop using a credit card, keeping the account open can be better for your credit score. Financial institutions can decide to close an account that’s not being used without warning the account holder. So if you stop using a credit card but want to avoid having the account closed, make a note to use the card for a small purchase here and there throughout the year—just remember to pay the bill each month so you don’t pay interest or fees!
You can still close an old account you no longer want and have an excellent credit score. Opening a new card or line of credit can increase the total amount of credit that’s available to you, and the average age of your accounts will grow over time.
If you’re not sure how many accounts you have open, you can get a free annual credit report from one (or all) of the credit bureaus on AnnualCreditReport.com. You’ll see the status of all your open credit lines.
3. Applying for too many things in a short amount of time
Sometimes people see their score drop when they apply for multiple credit cards or loans in a matter of weeks or months, which can look like a red flag to lenders.
How it affects your score: When you submit an application for any type of credit—whether it’s a new card, a car loan, or a home mortgage—financial institutions will perform what’s called a “hard” credit inquiry to look at your credit history and make a decision on whether you qualify for what you’re applying for. A hard inquiry can stay on your credit report for about two years and may decrease your score by a few points, but you can regain those points over a matter of months with responsible credit and debt management. Every situation is a little bit different, but when you have multiple hard inquiries in a short period of time, lenders may see this as a sign that you may not be financially stable.
The portion of your credit score determined by the average age of your accounts comes into play here, too. If you open several new accounts in a short amount of time, it will send the average age of your accounts down.
What you can do: Plan out any significant credit applications you hope to make and wait at least a few months, if not longer, between each of them—and stay the course. If you’ve applied for several different loans or types of credit within the past year, try waiting at least six months. If you’re ever unsure, you can also try using a free credit monitoring tool to see whether a hard inquiry is still impacting your score.
“Soft” credit inquiries are a little different than a hard credit inquiry. When you’re just shopping around and prequalifying to see what kind of rate or offer you could get for a loan, that’s a soft inquiry that shouldn’t affect your score. The hard inquiry doesn’t happen until you officially request the loan or line of credit.
4. Not using credit at all
A good credit history not only helps you get approved whenever you need to use credit, but it can also help you get the best terms possible. This means lower interest rates—which means more money saved. But some people are so wary of debt they avoid using credit altogether. What you may not realize is that this can actually hurt more than it helps in the long run, because whether you’re buying a home, starting a business, repairing a roof, or co-signing student loans for a loved one, credit will most likely be needed for a major transaction at some point in your life.
How it affects your score: If you don’t use credit at all, you won’t have any credit history—but lenders need to see some credit history to be confident that you’ll be able to pay them back. Making consistent payments on time typically counts for about 35% of your score, while the age of your accounts can typically make up another 15%.
What you can do: Start using a credit card and make payments on time. The longer you maintain a credit card and never miss a payment, the more it will do for your credit history and score. Plus, if you pay off your balance in full each month, you’ll never pay interest. You may also consider using a credit card that doesn’t come with any annual fees.
If you have trouble getting approved for a loan or the card you want, a secured credit card may be a good way to start building credit. Secured credit cards don’t require high credit scores, but they come with lower credit limits and require a security deposit. The deposit gets returned to you after a certain amount of time as long as you manage the account responsibly.
What about Buy Now, Pay Later (BNPL)? Although BNPL programs are a form of credit, they typically come with more risks than rewards when it comes to your credit score. Most BNPL services don’t currently report on-time payments to credit bureaus—which means they won’t help improve your credit score. But if you miss a BNPL payment, it can still show up on your credit history and have a negative impact.
5. Only using one type of credit
While regularly using and paying off a credit card is a great way to raise your credit score, it shouldn’t be the only type of credit you use if you want a top-notch score.
How it affects your score: Your credit mix typically comprises about 10% of your credit score, so it can actually help having one or more installment loans—like a student loan, mortgage, personal loan, or auto loan—in addition to a revolving account like a credit card.
What you can do: By successfully managing different types of debt and making consistent on-time payments, you’re showing potential lenders that you can handle loans without skipping a beat. This should raise your credit score and ultimately give you more control over your finances.
Now that you know how to avoid these common credit mistakes, you can confidently continue building your credit score and history. A higher credit score can help give you peace of mind that credit will be available to you if or when you need it—which is a win-win for your financial confidence and well-being.
Next step suggestions:
- If you’ve made one of these common credit mistakes, take a moment to reflect on the why behind it and come up with a plan to bounce back. For example, if you’re spending too much of your available balance, it may be time to start or revisit that budget.
- Get a deeper understanding of how your credit score is calculated here. Or, if you’re starting with little to no credit history, check out this article about how to build a good credit history from scratch.
- If you need to diversify your credit mix, increase your total available credit, or expand on your credit history with a new account, consider checking out new credit card options.