What Makes Your Credit Score Decrease?

A high credit score can save you hundreds and even thousands of dollars of interest payments every year. Lenders view people with high credit scores as responsible borrowers. These people typically check their credit reports often for mistakes and make sure to avoid incidents that will negatively impact their credit score. Preventing your score from decreasing requires vigilance, but it is an attainable goal.

Payment History

The highest percentage of your credit score, 35 percent, is determined by your payment history. It makes sense, because a lender determines your worthiness primarily by your likelihood to pay back a loan. Defaults on loan payments, bankruptcies or missed payments decrease your score and cause you to be viewed as a higher risk. To improve your credit scores or at least keep them consistent, pay at least the minimum amounts due on your bills on time each month and avoid defaulting on any loans.

Unnecessary Credit Inquiries

Credit inquiries indicate you are seeking new credit, and, in some cases, they negatively affect your credit rating. Many lenders consider a credit inquiry an indication that you are overextended on your current credit options, especially if you also carry high balances on your cards. Sometimes people are not aware they are giving consent for credit inquiries. When signing documents, make sure you are not consenting to having your credit report pulled unless it's required.

High Balance on Credit Cards

You need to keep the balance of your credit cards under 30 percent of your available credit to avoid it having a noticeable impact on your credit score. Increasing this percentage--known as the debt-to-credit ratio--causes your credit score to decrease, because it means you are using a high percentage of your available credit (also known as your credit limit). Maxing out a credit card (using 100 percent of your available credit), causes your credit score to decrease, even if you have other credit cards that are unused.

Others

Bankruptcies, foreclosures, accounts in collections, having too many revolving accounts open or any forms of defaulted loan payments typically cause your credit score to decrease, and the score reduction is significant in the case of bankruptcy or foreclosure. A lot of people don't realize that closing unused credit accounts may negatively affect their credit scores, because it could reduce their available credit, and, therefore, increase their debt-to-credit ratio.