Common Credit Mistakes

What’s in Your FICO Score

Important Notes


There are multiple credit scores, but the most common is your FICO score, which ranges from 300 to 850. A score of 760 or above is considered excellent and will land you the top deals available, while a 720 to 759 is strong but may not qualify you for the best rates.

A 640 to 720 means you’re likely to get approved for credit but not likely to qualify for the most favorable rates, while having a 639 score or lower will make it harder to get approved for a loan and will come with much higher interest rates.

Not only is it used to determine whether you’re creditworthy enough to open a credit card, land a mortgage, rent an apartment, or get an auto loan, but it also plays a significant factor in the interest rate you qualify for.

Common Credit Mistakes

To avoid this bottom rung, steer clear of these common credit mistakes:

Carrying Big Balances

Running up piles of debt is never a good idea. Keeping a big balance on a credit card can increase your credit utilization ratio, which is the percentage of your credit limit that you use. Together with other measurements of your overall debt, this ratio accounts for about 30% of your credit score.

The ratio is calculated using the end-of-month balance on your bill, meaning that your score can suffer even if you pay off your balance every month. To keep your debt utilization ratio in check, Bill Hardekopf, president of, recommends using less than a third of your credit limit.

Closing Credit Cards

It may seem like the responsible thing to do, but closing a credit card account can hurt your credit. That’s because it lowers the amount of available credit — which can then hurt your debt utilization ratio (unless you don’t carry any balance on your credit card). The length of your credit history is also factored into your credit score, so keeping a credit card open also helps.

“Keep it open and charge a sandwich once a month just to have activity, and then pay it off each month,” said Hardekopf. But if it’s just too tempting to have so many credit cards in your wallet, get rid of the one with the lowest credit limit, Ulzheimer recommends.

Paying Late

Your payment history is one of the biggest factors lenders look at and makes up approximately 35% of your FICO score — so late payments on credit cards, student loans, mortgages, or even doctor’s bills can all bring down your score if the company reports it to the credit bureaus.

“One or two isn’t going to be significant, but if it’s habitual, it will hurt you,” said Richard Barrington, senior financial analyst at MoneyRates.


The most obvious credit no-no is defaulting on a loan or credit card, which means you fail to pay back the amount owed to a lender. The biggest hits come from declaring bankruptcy or foreclosing on a home, which can easily slice 100 points or more from a credit score.

“Anything that can be classified as defaults on obligations are the bombshells that will leave a giant smoking crater on your credit,” said Barrington.

Opening too Many Credit Lines

While having some credit is good for your score, there is such a thing as too much. Each time you apply for a loan or credit card, the lender inquires about your credit history, which usually knocks off several points from your credit score. Applying for multiple credit cards or loans or increasing your overall available credit can also be a red flag.

“If you’re continually adding to your potential credit, credit companies are going to look at that as a risk that you could become overextended at some point,” said Barrington. “So if you can’t say no when a credit card offer arrives in the mail, this could drag down your credit [score].”

Not Having a Credit Card

Many Americans are ditching credit cards as they turn to debit and prepaid cards instead. But while this may keep you safe from debt, it won’t help your credit score.

You’re typically considered unscoreable without any credit history, meaning there isn’t enough activity on your credit file to calculate a score. This leads many lenders to deem you too risky to take a chance on, said Ulzheimer.

“It’s like walking into a job interview with an empty resume,” said Ulzheimer. “[A lender] would have to roll the dice on you to give you credit — and that’s not a good position for you.”

It also hurts the diversity of your credit file, which accounts for 10% of your score, and rewards you for having experience managing different kinds of credit — like credit cards, mortgages, and auto loans.


It’s tempting to help a friend or relative by co-signing a loan when they can’t qualify on their own. But it’s a considerable risk and can often result in ravaged credit.

By becoming a co-signer, you’re assuming equal responsibility for the amount owed, meaning any late payments or defaults will appear on your credit report, and your score will suffer accordingly. You could also end up facing collection action or even lawsuits.

“Co-signing is a disaster waiting to happen,” said Ulzheimer. “You’re basically saying, ‘Yeah, I realize no bank wants to do business with you, but I’m willing to do business with you anyway.’”

Source:  CNN/Money

What’s in Your FICO® Score

FICO Scores are calculated from many different credit data in your credit report. This data can be grouped into five categories, as outlined below. The percentages in the chart reflect how important each category is in determining your FICO score.

These percentages are based on the importance of the five categories for the general population. For particular groups – for example, people who have not been using credit long – the importance of these categories may be somewhat different.


Payment History

  • Account payment information on specific types of accounts (credit cards, retail accounts, installment loans, finance company accounts, mortgage, etc.)
  • Presence of adverse public records (bankruptcy, judgments, suits, liens, wage attachments, etc.), collection items, and/or delinquency (past due items)
  • Severity of delinquency (how long past due)
  • Amount past due on delinquent accounts or collection items
  • Time since (recency of) past due items (delinquency), adverse public records (if any), or collection items (if any)
  • Number of past due items on file
  • Number of accounts paid as agreed

Amounts Owed

  • Amount owing on accounts
  • Amount owing on specific types of accounts
  • Lack of a specific type of balance, in some cases
  • Number of accounts with balances
  • Proportion of credit lines used (proportion of balances to total credit limits on certain types of revolving accounts)
  • Proportion of installment loan amounts still owing (proportion of balance to original loan amount on certain types of installment loans)

Length of Credit History

  • Time since accounts opened
  • Time since accounts opened, by specific type of account
  • Time since account activity

New Credit

  • Number of recently opened accounts and proportion of accounts that are recently opened by type of account
  • Number of recent credit inquiries
  • Time since recent account opening(s), by type of account
  • Time since credit inquiry(s)
  • Re-establishment of positive credit history following past payment problems

Types of Credit Used

Number of (presence, prevalence, and recent information on) various types of accounts (credit cards, retail accounts, installment loans, mortgage, consumer finance accounts, etc.)

Important Notes:

  • A FICO score considers all these categories of information, not just one or two.
    No one piece of information or factor alone will determine your score.
  • The importance of any factor depends on the overall information in your credit report.
    For some people, a given factor may be more important than for someone else with a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your FICO score. Thus, it’s impossible to say exactly how important any single factor is in determining your score – even the levels of importance shown here are for the general population, and will be different for different credit profiles. What’s important is the mix of information, which varies from person to person and for any one person over time.
  • Your FICO score only looks at information in your credit report.
    However, lenders look at many things when making a credit decision, including your income, how long you have worked at your present job, and the kind of credit you are requesting.
  • Your score considers both positive and negative information in your credit report.
    Late payments will lower your score, but establishing or re-establishing a good track record of making payments on time will raise your FICO credit score.

Information sourced from