What To Really Worry About on Your Credit Report

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Moyo Studio / Getty Images

Credit reports are a hot topic, particularly during the current housing boom, as news reports consistently stress that a good credit score is an important factor in getting a good mortgage rate. However, not all consumers are aware of what’s really important on a credit report.

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While there are five major components comprising the industry-standard FICO credit score, there are many more actions you can take as a consumer that can raise or lower your score. Here’s a look at some of the factors on your credit report — big and small — that you should consider if you’re looking to snag a high score.

Last updated: June 3, 2021


Missed Payments

One of the worst things you can do in terms of dragging down your credit score is missing one or more of your monthly payments. Your payment history is the single largest component of your credit score, comprising a whopping 35% of its entirety. Of course, it should make sense that missing a payment would prove costly to your score. After all, a credit score is little more than an estimation lenders use to determine the creditworthiness of a debtor. There’s no clearer sign that you could be a credit risk to lenders than a payment history that shows you have trouble paying back what you borrow.

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High Credit Utilization

Credit utilization is a measure of how much of your available credit that you’re using. For example, if you have a $10,000 credit line but carry $5,000 in outstanding debt, your credit utilization is 50%. This is considered high. If you have a high credit utilization, it means that you’re not able to pay back your debt in a timely fashion, making you a higher risk for lenders.

Credit utilization is such an important factor in credit scoring that it comprises 30% of your total score. In terms of credit scoring, both your total credit utilization and your utilization per account are taken into consideration. Lenders generally want to see a credit utilization no higher than 30%, but the lower the better.

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Collection Accounts

Although missing a payment can hurt your credit score, having an account in collection can be devastating. While an occasional late payment can be explained away — perhaps you simply weren’t paying attention to your payment calendar, or had a temporary cash crunch — by the time an account reaches collection status, you’ve had months to come to some sort of payment arrangement and failed to do so. A collections account is serious business because it literally means that your lender has abandoned all hope that you will pay them back and has either transferred the account to another division in the company or sold it to an outside agency. When lenders see collection accounts on a credit report, they’re highly unlikely to offer you any type of additional credit.

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According to credit reporting agency Experian, one of the worst things that you can do to damage your credit report is to file for bankruptcy. A bankruptcy filing is a clear indication that you have gotten in over your head with your debt and couldn’t work out any arrangements with your lender to settle it. A bankruptcy will tank your score at the time of your initial filing and remain on your credit report for seven years in the case of a Chapter 13 bankruptcy or 10 years for a Chapter 7 filing.

Although the effect on your score will lessen over time, the mere fact that you have a bankruptcy on your report may preclude you from getting any additional credit over that time. If you’re looking for a new credit card, for example, most companies will ask you if you have a bankruptcy on your credit report. They will likely deny your application if the answer is yes. Landlords may also deny your application for an apartment if you have an active bankruptcy on your credit report. Although you may be able to get an auto loan, you’ll likely pay sky-high interest rates if you’ve recently filed bankruptcy.

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Credit Cards Only

Perhaps somewhat ironically, if the only accounts on your credit report are a few credit cards, then your score will take a small hit. The credit scoring formula prioritizes lenders that have a wide variety of debt accounts, such as credit cards, auto loans, home mortgages and personal loans. The rationale is that if you can demonstrate to lenders that you’re capable of handling a wide range of debt, then you’re less likely to default on any future debt.

Of course, you shouldn’t take on additional debt that you don’t need just to try to raise your credit score. After all, your so-called “credit mix” only accounts for 10% of your total credit score anyway. It does, however, mean that you shouldn’t be concerned about taking on auto loans or home mortgages if they’re part of your overall financial plan.

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Credit Inquiries

Although lenders like to see a diverse mix of credit accounts on your report, repeatedly applying for new accounts can be damaging to your score. Hard credit inquiries, which are triggered when you actually apply for new credit, can remain on your credit report for up to two years and count for 10% of your total credit score. While credit inquiries, which fall under the scoring category of “New Credit,” are minimally important to your score overall, you’ll likely get dinged a few points for each inquiry you make. Of course, if you’re making lots of inquiries over a short period of time, this may suggest to lenders that you’re in financial distress, which is never a plus when you’re looking for new credit.

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No Credit

You might think that if you never borrow any money, you’ll have a spotless credit history and a perfect credit score. Unfortunately, that’s not how credit scoring works. In order to prove to lenders that you’re a good credit risk, you’ve got to demonstrate that you have the ability to borrow money and pay it back. This means that you need some open accounts on your credit reports, whether they are credit cards, personal loans or installment loans. Until you show that you can take on debt and manage it responsibly, lenders won’t be able to determine whether or not they should extend you any credit.

Of course, this begs the question of how you can start to build a credit history if you can’t get any credit. One option to start with is a secured credit card, which requires a cash deposit equal to your credit line. After a certain period of making payments on time, such as one year, your lender may extend you unsecured credit. An auto loan can also be a good first credit account, particularly if you co-sign with a more established borrower.

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Short Credit History

Merely opening a new credit account isn’t enough to push your score up into the 800 range right away. The length of your credit history actually counts for 15% of your credit score. There are three components to your length of credit history: the average age of your accounts, the age of your oldest account and the length of time since you opened your last account. Basically, the longer your accounts are open, and the longer the period of time since you opened a new account, the better your credit score will be. Therefore, experts recommend that you don’t close any old accounts unless necessary, particularly if they are no-fee accounts.

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Inactive Accounts

In order to keep your credit in good standing, you’ll have to use your accounts from time to time. This doesn’t mean that you should run up debts on all of your credit cards and only pay the minimum balance. But it does mean that if you don’t use your credit, you may lose it. If you haven’t used your credit cards for a period of time, your lenders may designate them as inactive and close your accounts. This can hurt in two ways. First, since the length of your credit history makes up 15% of your score, losing old-age accounts may knock you down a few points. Second, if your accounts are closed, the amount of your available credit shrinks. If you have any outstanding balances, this will increase your credit utilization. Since credit utilization is the second-most important factor in credit scoring, it could have a more significant impact.

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Joint Debts

Joint debts are in the names of two or more people, and they show up on the credit reports of each individual involved. While having a joint debt in and of itself is not a problem, it does mean that you are trusting your partners on the debt to act responsibly. Since joint debts are the equal responsibility of all partners, if any one person fails to make a payment, it affects the credit reports of all involved parties. For example, let’s say you open a joint credit card with your husband. If he promises to make all the payments and fails to do so, it will hurt your credit report just as badly as his, even if you’re not personally responsible for running up any of that debt. Of course, the opposite is also true. Even if you don’t make any of the payments on that card, any positive credit history will also reflect on your personal credit report.

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