Bad Credit 101: The Small Mistakes That Are Killing Your Score

UPDATED: December 11, 2022
PUBLISHED: December 11, 2022
woman holding phone and credit card

You just applied for a credit card, or maybe it was a new apartment or a loan, and you got denied. Seriously? You were under the impression that your credit was solid. It just sucker punched you in the face, so now you’re wondering what’s causing your bad credit score.

Did you know that lenders and landlords often consider an applicant’s credit score before approval? Being rejected due to bad credit is never fun—especially if you didn’t know it was less than stellar.

The good news is that the credit-scoring process is fairly transparent, and by correcting some bad habits, your score can improve.

Here’s what you’re probably doing wrong, and how you can fix it:

1. Late payments cause a bad credit score.

Paying bills late is by far the biggest drag on your credit. Payment history determines 35% of your FICO score, and for good reason. If someone has failed to pay their bills on time in the past, they will probably continue to do so.

You can make sure you pay your bills on time by setting up payment alerts. If you know exactly when your bills are due, you’ll at least have the opportunity to pay them on time.

2. Using too much credit isn’t good.

Your credit utilization ratio is another major factor that determines your FICO score and, therefore, your overall credit health. This number comes from two semi-independent figures:

  1. Total amount of credit in use divided by total amount of credit available.
  2. Credit in use on individual cards divided by amount of credit available on each card.

When lenders see you’re using a high percentage of your available credit, they assume you may have difficulty paying off more credit, should you have access to it. This is why your credit utilization ratio affects your overall credit and why maintaining a lower ratio is always better.

To prevent your credit utilization ratio from getting out of hand, consider setting up account alerts through your issuer. The reminder will let you know when the proportions are getting lopsided so you can adjust accordingly. Also, check your account manually once a week or so. Five minutes of time could save you years of headache trying to repair a bad credit score.

3. Accounts in collection cause a bad credit score.

If you pay your bills on time while keeping your card balances low and your credit is still bad, it’s time to pull your credit report. You may have forgotten about an old account in collection, but the credit bureaus haven’t. Whether it’s from a medical bill, an old credit line or perhaps from something you co-signed on years ago, unpaid debt that has gone to collections can be a major drag on your credit score. Fixing or managing this information is extremely important.

For starters, you’ll need to know specifics about outstanding debt before you can address it. You can access all of the information used to determine your credit score for free once a year on your credit reports at Here you’ll find credit card information, loans and, of course, any accounts in collection.

If you find any erroneous information on your report, you can:

  1. File a dispute directly with the credit bureau(s) reporting the error.
  2. File a dispute with whoever is holding the debt (bank, credit card company, collection agency, etc.).
  3. Offer supplementary supporting information to the Consumer Finance Protection Bureau.

It’s usually best to do all three to ensure all parties are not only aware of the error, but also have enough information to judge it accurately.

If the collections data is accurate, it’ll usually remain on your credit report for seven years from the date of issue. During this period it’s important to ensure you make all credit payments on time, that you maintain a low overall credit utilization ratio and that you restrict opening new accounts that result in a hard credit pull.

Having bad credit will likely present certain temporary borrowing limits, but you can overcome it by avoiding the causes of a bad credit score. If you’re smart about promoting habits that result in credit improvement, this period can be shortened dramatically, making bad credit a thing of the past.

This article originally appeared on NerdWallet. Kevin Cash is a former staff writer for NerdWallet. 

This article was published in May 2015 and has been updated. Photo by Kite_rin/Shutterstock provides information, insight and consumer-driven advice about personal finance, helping people lead better lives through financial education and empowerment.