What Affects Your Credit Score: 10 Ways To Ruin Your Rating

A credit score or credit rating is one of the most important factors in your financial life. Canstar reveals some of the common ways to ruin your credit score.

There are many things that could potentially show up on your credit history and affect your credit score, and unfortunately, these things can follow you wherever you go. Sometimes small decisions have a much larger effect than you realise, and when clumped together, they can end up affecting your credit rating for better or worse.

Here are 10 things to avoid in order to maintain a healthy credit score:

  1. Missing a repayment
  2. Maxing out your credit limit
  3. Applying for balance transfers too often
  4. Closing credit cards that have a good repayment history
  5. Applying for several credit or loan products at once
  6. Getting a judgement
  7. Ignoring errors on your credit report
  8. Not alerting creditors when you change your name
  9. Borrowing money to boost your credit score
  10. Not regularly checking your credit report

The table below displays a snapshot of 4-Star and above low rate credit cards on Canstar’s database, with links to providers’ websites. The products and Star Ratings displayed are based on a monthly spend of $2,000. Results are sorted by Star Rating (highest to lowest) then alphabetically. 

1. Missing a repayment

Making late payments or missing repayments on your credit cards or loans is a sure fire way for a borrower to ruin their credit score. A large majority of your credit score is based on your payment history, so make sure you budget around those monthly bills.

It’s not just your credit cards and loans that you need to pay on time, either. Even your phone plan and utility bills will show up on your credit history if you don’t pay them on time every single month.

2. Maxing out your credit limit

“Maxing out” your credit card by spending up to your credit limit is a risky business. When calculating your credit score, lenders consider your credit utilisation ratio (also called the debt utilisation ratio or debt-to-credit ratio), which is the amount of available credit you are currently using.

Most online sources agree that a credit utilisation ratio of about 50% will begin to affect your credit score. Spending between 10% to 30% of the available credit limit may be less likely to hurt a borrower’s credit rating.

3. Applying for balance transfers too often

Every time you apply for a balance transfer to repay a credit card debt, an official enquiry is made on your credit report. So how often is too often for balance transfers?

Back-to-back balance transfers are when someone transfers their credit card debt onto a new card with a balance transfer interest rate, doesn’t repay it during the balance transfer timeframe, and transfers it to a new balance transfer card.

By doing this, a borrower is almost certain to be seen as unreliable or unable to meet the required repayments, and it can negatively affect your credit score.

4. Closing credit cards that have a good repayment history

Another common mistake that people make is closing credit cards that they’ve faithfully repaid for years.

You may think it makes sense to close a credit card if you’ve paid it off completely and you no longer need to use it – and it does make sense – but keep in mind that a “good account” like this helps your credit score. Closing the account means it will no longer be helping your credit report look reputable to lenders.

5. Applying for several credit cards or loans at the one time

Applications for credit cards or loans – which lenders call “enquiries” – have a definite impact on your credit score. Making several credit or loan applications to different lenders within a short period time makes you seem desperate for credit and can negatively affect your credit rating.

6. Getting a ‘judgement’

In worst scenario cases, it’s not uncommon for creditors to sue someone for not paying back a debt. If the court rules a ‘judgement’ that the person must repay their debt, this is a big black mark on your credit history.

It shows that not only did you avoid paying your bills, but you failed to do so to such a severe extent that the court had to get involved. This is something that will ruin your credit score and make it extremely difficult for you to take out a loan again.

You can avoid this situation with free financial counselling from Financial Counselling Australia. Their National Debt Helpline provides free phone help from a financial counsellor and is available on 1800 007 007 (open 9.30am – 4.30pm on Mondays to Fridays).

7. Ignoring errors on your credit report

Errors or inaccuracies can get introduced in many ways but not knowing about the errors or ignoring the errors and not fixing them is an easy way to ruin your credit score.

Some bills and payments, such as medical expenses or hospital bills, go through a long process before billing you and are therefore more likely to introduce errors or inaccuracies. If you have to fix up a problem with a bill, it’s also wise to go online and check your credit report to see whether it has been affected by the error.

Read our guide on how to fix errors on your credit report.

8. Not alerting creditors when you change your name

While this may sound trivial, it’s one of the most common reasons for inaccuracies on credit reports. If you get married or divorced, you must inform all financial institutions about this change of details so that no mistakes end up on your credit report.

Another thing to consider is that while credit reporting agencies (credit bureaus) may keep separate credit scores for spouses, the actions of your partner can still impact your credit score. If one spouse fails to pay a joint bill or joint credit card on time, both of your credit scores will be negatively affected.

9. Borrowing money to boost your credit score

As unbelievable as it is, there are actually scam credit schemes that bill themselves as “credit score boosters”, often based outside Australia. The scheme entices people to pay to be an authorised user on a line of credit with a perfect record to influence their credit rating, known as “piggy-backing”.

The scheme can be incredibly expensive to join and requires all of the person’s identification information. Borrowers are better off using their money to repay existing debts than wasting money on quick-fix scams.

Real ways to fix a bad credit score can be found on our website, but in short, they do take some time and self-discipline to implement. The sooner you start acting to improve your credit score, the sooner you might see improvements.

10. Not regularly checking your credit report

Following on from number seven, it’s important to check your score regularly to see if there’s any there that shouldn’t be.

Unfortunately, identity theft and fraud are common crimes in this technological society. By regularly reviewing your credit report, you can check that no one is using your name to borrow money or run up serious debts.

And if your credit score is looking good and you’re ready to apply for a loan or a credit card, compare your options using our website:


Follow Canstar on Facebook and Twitter for regular financial updates.

Thanks for visiting Canstar, Australia’s biggest financial comparison site*

→ Looking to find a better deal? Compare car insurancecar loanshealth insurancecredit cards, life insurance, as well as home loans, with Canstar.

Similar Topics:

Share this article