Chapter 3. Which financial actions hurt my FICO Credit Score?

Prior to making a major purchase, check your FICO score and review your credit report to make sure you do not need to repair any damage. Remember, your FICO score directly impacts the deal you are able to secure as you seek credit.

 

How to

You need your score to be as high as possible to be offered a good interest rate, good terms, lower down payment, and fewer fees or charges.

Here are the actions that could hurt your score that you must work to repair prior to making major purchases:

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  • Missing a payment regardless of the dollar amount. It takes 24 months to restore credit score with one missing payment.
  • Late payments or payments not received by the established due date by the creditors
  • Acquiring more revolving credit (credit cards or department store cards) than installment credits (car payment or student loans)
  • Maxing out credit cards - this will impact capacity or your ratio of charges to credit limits
  • Opening many credit cards in a short time - resist that black umbrella you might get at the airport for opening a card you do not really need or want to keep over time.
  • Getting loans from banks or financial institutions for personal use
  • Defaulting on loans, including student loans
  • Having your defaulted accounts sent to collection agencies
  • Declaring bankruptcy including chapter 7 or chapter 13

Think of all the factors that are used in calculating the FICO score. Do not take any action that will hurt those factors. It is extremely simple to maintain a high FICO score if you adhere to the principles of financial literacy by keeping consumer and personal debts at the minimum, paying your bills, in full and on time, and diversifying your credits between revolving and installment types.

Practice

Now that you know what not to do to hurt your FICO score, think of paying it forward and discuss it with a friend or a family member.

 

Congratulations! You can move on to Chapter 4. What does not affect my FICO Credit Score?

To review the full module on the FICO score, click here.