Credit Score Killers
By Blake Ellis | 8/19/2013, 11:50 a.m.
"Anything that can be classified as defaults on obligations are the bombshells that are going to 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 makes an inquiry into 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're one of those people who 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
A growing number of Americans are ditching credit cards as they turn to debit and prepaid cards instead. But while this may keep you safe from debt, it's not going to help your credit score.
Without any credit history, you're typically considered unscoreable, 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 to be in."
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 out a friend or relative by co-signing a loan when they can't qualify on their own. But it's a huge risk to take, and it 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 show up 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.'"