Understanding Credit: Part Three

This is the final installment of a three part series on credit by our Credit Manager, Cathy Latiolais. Cathy has over 17 years of experience with lending and has helped thousands of members over the years. Need to catch up? Part One | Part Two

Actions that can undermine a healthy credit score

Computer with image of Savvy MoneyThere are several actions that a person can do that will lower the credit score and cause you to be a higher credit risk.

  1. Missing Payments. Missing a single payment on any obligation reported can drop the credit score 50-70 points. Missing payments more frequently will penalize you more severely than someone who does not.
  2. Maxed out credit cards. Maxing out your credit cards can lower your score by as much as 100 points.  Try keeping the balance between 20-30% of your credit limit.
  3. Closing Credit Lines. When you close a credit line it will reduce your capacity.  Positive credit will remain on your report indefinitely, however, closed accounts in good standing are usually removed from the credit report 10 years after closing.  Open or closed, once that account is removed from the report all of that good history is gone.
  4. Aggressively applying for credit. When you fill out a credit application you are giving that lender permission to pull your credit.  When this is done it is called an inquiry.  The inquiry will remain on your credit report for 24 months but will only impact your score for 6 months.   The more inquiries you have the more it can hurt your score.  However, consumers are not penalized for shopping for the best rates on Mortgages, Auto, and Student Loans.  Any number of these types of inquires will only count as 1 if it is within 14 days.  This is not the case when apply for credit cards.
  5. Opening multiple new credit lines and loans in a short time. New debt, transferred debt and increasing credit lines can temporarily lower the score if done within 6-12 months.  When combined with multiple inquires the damage to the credit score is even greater.
  6. Using only revolving debt. Its important to have a good mix of installment and revolving debt.  This shows the lender you are able to handle different kinds of debt.


Five simple steps to improving your credit score.

Whether you have high interest rates or are just getting outright declined when applying for credit you can follow these five simple rules to help restore your credit score.

  1. Pay bills on time
  2. Keep bills current and under the credit limit.
  3. Maintain low balances on your credit cards. 30% or lower will improve your score quicker
  4. Apply for new accounts only when necessary.
  5. Verify your credit report for accuracy.

Repairing the credit score can take time, but given the high cost of bad credit its worth while. If you are interested in improving your credit score, get in touch with one of our lending team members or use our free SavvyMoney tool which has great financial articles written by financial experts including Jean Chatzky.




Post author: Cathy Latiolais, Credit Manager

The opinions expressed on this page are for informational purposes only and is not intended to provide legal or financial advice. The views expressed are those of the author of the article and may not reflect the views of the credit union.