Reduced Credit Limit and 3 Other Factors That Hurt Your Credit Score

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A good credit score is essential for everything from financing major assets to getting good insurance rates. Besides using your credit wisely, you should consider how the numerous credit score components work and how various factors could hurt your score. While some, like your payment history, are within your control, others, like your credit limits, aren’t always.

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Here are factors that hurt your credit score and why.

Reduced Credit Limit

The Federal Reserve Bank of New York reported a higher credit delinquency rate of 9% for the first quarter of 2024. Some creditors have responded by cutting customers’ credit limits to reduce their risk. In some cases, this can happen even if you use your credit card responsibly.

If you’re carrying balances, the limit decrease will increase your credit utilization, which is the percentage of available credit you’re using. Since your balances make up 30% of your credit score, the impact could be significant unless you quickly pay down debt or convince the creditor to increase the limit again.

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Closed Accounts

Whether you request it or the lender closes your account for inactivity or delinquency, your credit score can suffer in multiple ways.

First, you’ll no longer have the available credit. Not only could your credit utilization go up, but you’ll also miss out on future chances to use that credit line responsibly to build your score.

At the same time, the closed account can make your credit mix less diverse and your credit history shorter, which are factors impacting 10% and 15% of your score. If negative items led to the account closure, those can continue hurting your score for years until they fall off.

Credit Report Errors

If you don’t regularly check your credit reports, you might miss out on finding and disputing errors that are dinging your credit score. According to the Consumer Financial Protection Bureau, some examples include:

• Incorrect account balances or limits

• Mistaken report showing authorized user owns account

• Payment history issues, such as incorrect amounts or dates

• Accounts you never opened

• Accounts reported twice

• Bad debts that should have fallen off

Since these can affect multiple components of your credit score, immediately report such errors to the bureaus — TransUnion, Experian and Equifax. You can find online dispute options and information on the bureaus’ websites. You can also check your credit score and report there.

Late or Missed Payments

Since your payment history makes up 35% of your score, the damage from even one late or missed payment can be extensive. This includes cases where you’re a cosigner. If the primary borrower isn’t responsible, your credit could get hurt.

In addition to the credit damage, the fees and penalty interest rates involved with delinquent accounts can get costly. Plus, you could eventually face bigger issues like dealing with collections agencies or filing for bankruptcy.

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This article originally appeared on GOBankingRates.com: Reduced Credit Limit and 3 Other Factors That Hurt Your Credit Score