Woman using her credit card on the computer.

Things That Can Lower Your Credit Score And How To Avoid Them

Victoria Araj10-minute read
March 30, 2021

Your credit score is the most important factor in determining your eligibility for a loan and your interest rates. When building credit, it is important to understand what can affect your score. Several factors can change your credit score, both to build it and damage it. Read on to discover what those factors are, how to avoid damaging your credit score, and how to build it up.

What Factors Determine Your Credit Score?

Before we dive into what hurts your credit score, it’s important to understand how credit bureaus determine your score. While the three major credit reporting bureaus (Equifax®, Experian, and TransUnion®) use a complicated algorithm to determine your score, there are several factors that we know can strengthen or damage your credit score.

Payment History

Your ability to make payments on time is the most important factor in determining your credit score. Even one missed payment can cause it to drop by up to 80 points. To avoid damaging your credit score, make a habit of paying all your debts on time. You may also want to automate your payments to avoid forgetting about them. This will also help you to avoid any immediate late fees or having your credit agency raise your interest rate over time.

Credit Utilization 

Another factor in your credit score is your debt to credit ratio. This in mind, you’ll want to use as little of what credit is available to you as possible; the typical rule of thumb is less than 30%.

For example, if you have a credit card with a limit of $1,000, you will want to use less than $300 of that credit at any time. If you plan to use a larger amount than 30%, you may want to check with your credit card company about increasing your limit, but be sure that this doesn’t cause you to use more credit than you can pay back each month. 

Credit Mix 

People with the highest credit scores often have a diverse mix of lines of credit. You may want to consider what types of accounts you have, and how long you have maintained them. This can include different types of credit cards, auto or home loans, and other lines of credit.

For example, it can be beneficial for young people to take out student loans to build credit, and to open a credit card that they pay off every month during college. This helps them to diversify and build credit so that they can get favorable loans when it comes time to purchase a property or a car after graduation.

Hard Credit Inquiries

There are two types of credit inquiries – hard and soft. Soft inquiries do not affect your credit score and are typically conducted by you, like when you check your credit score online. A hard inquiry is recorded in your file each time someone other than you conducts a credit inquiry. Typically, these are done by a lending institution or credit card company to evaluate giving you a line of credit.

You should be careful about how many hard inquiries are on your account as too many in a short period can hurt your credit score.

Negative Or Incorrect Information

The final factor in your credit score is if there is negative information on your lines of credit. Examples of this are late or missed payments, foreclosures, collection accounts, or bankruptcy. Any negative marks indicate that you have had trouble paying off your credit in the past, which can be a red flag for future lenders. Be sure to look at your credit report regularly to ensure that all marks were caused by you and not someone who is committing fraud by using your identity.

What Has A Negative Effect on Your Credit Score?

There are a variety of factors that can lower your credit score. Here are a few more actions to be aware of and try to avoid.  

Making Late Payments

Whenever possible, avoid making late payments on your credit cards. Even one late payment can have a detrimental effect on your score. If you ever make a late payment by mistake and it is reported on your credit score, you may want to reach out to your credit card company to see if you can backdate your payment to decrease the negative impact.

Maxing Out Your Credit Card

Using too much of your debt to credit ratio can have a negative impact on your credit score. If you intend to use more of your credit balance in the future, you may want to increase your line of credit in advance to avoid making your score drop. You should always be aware of how much credit is available to you and keep your balances as low as possible.

Applying For Too Much Credit At Once

Each time a credit card company or other lender requests your credit score for approval, there is a hard inquiry recorded in your file. These hard inquiries typically stay on your credit report for 2 years and can impact your score negatively. Lenders look at these hard inquiries to evaluate how much credit they will extend to you. If you’re making several hard inquiries in a short time, it could cause you to be denied a new line of credit. If you are looking to take out a large amount of money for an auto or home loan, avoid taking out other lines of credit for the months leading up to your large loan.


Bankruptcy can cause your score to plummet by several hundred points. Not only does bankruptcy have an immediate impact, but Chapter 7 bankruptcy stays on your credit report for 10 years and other forms of bankruptcy for 7 years. Any accounts involved in the bankruptcy remain on your statement as well.

It is important to note that the negative impact of bankruptcy diminishes over time. Furthermore, your score will slowly improve the further away you get from declaring bankruptcy as long as you make decisions that have a positive impact on your score.


Think of a foreclosure as a surrender of a mortgage. A foreclosure process happens when lenders repossess a house, often against an owner’s will. A foreclosure will affect a credit score by anywhere from 100 – 200 points. A foreclosure will stay on your credit score for 7 years and can be very difficult to bounce back from. In addition, foreclosing on a mortgage will make it very difficult to qualify for one in the future.

Short Sale

A short sale can be less impactful to your credit score than a foreclosure because it may benefit a lender. This is why short sales are seen as a negotiated exit from a mortgage rather than a surrender of a mortgage. Short sales cause a sharp drop in your credit score, likely of 100 points or more. The higher your score, the more it is likely to fall because of the way the scoring system records a short sale on your credit report. To rebound from a short sale, you must focus on your consumer credit by keeping credit balances low and paying all bills on time. It is unlikely that you will be approved for another mortgage in the future

Charge-offs Or Collection 

A charge-off is a debt that a creditor has stopped trying to collect after you’ve missed several payments. Often, you’ll hear this referred to as having been “sent to collections.” Just because the creditor has stopped trying to collect the debt doesn’t mean that you’re off the hook. A charge-off typically affects a credit score by several dozen points. If you find yourself losing credit points due to a charge-off, you can typically come back from the hit in a couple of years. 

Refinancing Or Debt Consolidation

Refinancing or consolidating debt can lower your credit score. This often happens when a homeowner takes out a home equity line of credit (HELOC) or takes on other large lines of credit in a short time. For example, if someone takes out a credit card and an auto loan and also refinances their home over the course of a few months, they could likely expect their score to plummet due to a sudden spike in credit. By paying these accounts off each month, your score can be expected to bounce back over the course of several months or a couple of years.

Closing A Credit Card

While it may seem like a good idea to close a credit card that has a balance left on it to avoid spending additional money, that is not typically the case. Remember that a portion of your score is calculated based on your debt to credit ratio. If you close a line of credit and still have debt on the card, you are going to negatively impact your debt to credit ratio.

Only Using One Type Of Credit 

Credit bureaus look favorably on individuals who have different types of credit accounts. Your credit portfolio should be diverse. If someone is only using one line of credit, it does not demonstrate to potential lenders that they can handle multiple debts. It may be a good idea to take out a second credit card to build credit if you only have one.

Not Having Credit History 

Like only using one type of credit, not having a credit history at all can negatively impact a credit score. If you are looking to make a purchase in full, you may want to take out a loan or put it on a new credit card to start building credit. This could be the case for a first-time auto purchase, a student loan, or a credit card with a lower limit. Once you build up some credit, you can choose how to leverage your expenses to build it even more.

Being An Authorized User On A Bad Account 

If you are an authorized user on an account that goes unpaid, it may negatively impact your credit score. The good news is that this likely won’t affect it by more than a handful of points. Becoming an authorized user on another person’s account may be a great way to help you build credit, but make sure the account holder is making all their payments regularly.

What Does Bad Credit Affect?

Having poor credit can affect your access to money in the future. For example, you can be denied a line of credit if your score negatively reflects your reliability to pay back debt.

Another effect of having bad credit is that it could be expensive for you when you are approved for a new line of credit. People with lower scores will be charged higher interest rates and can incur fees in other areas. Loans that are specifically for people with low credit scores are called subprime loans and often come with a significantly higher interest rate than standard loans.

In addition to not getting approved for a loan and receiving a higher interest rate, it’s possible to get turned down for a job. Some employers require a credit report before they will hire you. If you have poor credit, you may ruin your chances of landing your dream job.

How To Boost Your Credit

Now that you understand what can damage your credit score and why it is important, you can look at different ways to boost your score. Remember, the higher your score, the better chance you have of obtaining a new line of credit in the future, and a higher chance of obtaining lower interest rates.

Pay Your Bills On Time

By paying all your bills on time, you’ll demonstrate to the credit reporting bureaus that you’re a trusted borrower. Debts other than credit card bills can come into play, so make sure that you’re keeping up with your payments. This will prevent your accounts from being charged-off or sent to collections, thus maintaining your credit health.

Keep Your Balances Low

By keeping your debt to credit ratio low, it will prove that you are a responsible borrower. To figure out your credit utilization ratio, look at all your credit card balances and add them together. Then, add all your credit limits together. Divide your balance total by your limit total, and you will be left with your credit utilization ratio. You will want to keep this ratio below 30%. If you can’t increase your credit limit and need to use more than 30% of your available credit, you may want to make payments biweekly instead of monthly to keep the credit utilization to a minimum.   

Don’t Close Unused Accounts

Permitting that your accounts are not accruing fees each year, keep your lines of credit open even if you are not using them. As mentioned before, if you have an account that is carrying a balance, you will want to keep it open until the balance is paid off.

Even when you have paid off an account, you may want to keep it open. The age of your accounts can affect your credit score, so keeping them open can help positively affect your credit. By having a larger unused line of credit that improves your debt to credit ratio and an account that has been open for a long time, you can improve your credit score.

Monitor Your Score

It is vital to your success that you monitor your credit score – you won’t know what has influenced your score until you’ve seen your report. When you’ve seen all your accounts and understand where the marks come from, you can determine if you are on the right track or if there are changes needed to improve your score.

When you know what the marks on your credit report should be, you’ll be able to recognize if there is any fraudulent activity on your accounts. If there is any inaccurate information on your credit report, you will want to notify the credit bureaus immediately and dispute the information. Errors or identity theft can happen at any time, so we recommend that you check your credit score at least once a month to ensure that you are on the right track.

The Bottom Line

Credit scores are an important factor in a person’s finances, but good credit doesn’t happen overnight. Several factors play into a credit score, and understanding them can help you to build yours. Give yourself the power to make decisions that positively impact your credit score and avoid actions that could cause it to drop.

Your financial health is important and Rocket HQSM is here to help you build your financial future. Create a Rocket HQ account here to get started on your path toward financial success. You can also visit our credit and personal finance learning centers for more information.

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.