What makes your credit rating bad

Learn how to steer clear of these financial pitfalls and keep your credit rating in tip-top shape with our list of the seven biggest drains on your credit score. Have you been turned down for a loan, a credit card or a mortgage because of a bad credit rating? Perhaps you simply want to take steps to make sure your credit rating never gets in the way of your plans for the future.

If you make a late payment, miss a payment or pay less than is required by your credit agreement, it all gets added to your credit history. For advice on staying in control of your finances, check out how to manage your credit repayments. It will probably come as no surprise that declaring bankruptcy will significantly affect your credit rating. The same is true if you use an Individual Voluntary Arrangement IVA , which is a repayment agreement, made between a borrower and a lender when they are unable to pay their debts.

These are both factors that credit reference agencies use to decide your credit rating. Our comparison tool can help you choose a card that may work for your situation.

As long as you repay money you owe on time, you should never have to worry about County Court Judgements. For more on keeping track of your credit history, read our article How to check your credit score. If you fail to do so, you could easily be a victim of theft and not find out for months or even years.

Fortunately, you can check your credit reports from all three credit reporting agencies—Experian, Equifax, and TransUnion— once a week through April , and after that once per year using the website AnnualCreditReport. Unfortunately, you may regret your choices if you do eventually need to borrow money to finance a car or take out a mortgage to buy your own home.

Tempted by the enormous signup bonuses you can earn on rewards and travel credit cards? Too much new credit can cause your score to temporarily drop, which could make it more difficult to qualify for loans with the best rates and terms in the future.

Keep in mind that, when you cosign for a loan you are jointly responsible for repayment of that liability. Before you cosign for a loan, the Federal Trade Commission FTC suggests making sure you can repay monies borrowed if you absolutely had to. Cosigning on a loan is another good reason to check your credit reports regularly, and also to sign up for a free credit monitoring service like Credit Sesame or Credit Karma. These services keep an eye on your credit for you, and you can even set up notifications so you know right away if a late payment is made.

Not only will you likely take a hit to your credit score for opening a new credit card, but your utilization could increase if you transfer your balances over and use your old credit card to rack up more debt over time. This means a single late payment could cause serious damage to your score, but it also means multiple late payments could harm it even more. The best thing you can do for your credit is always pay your bills early or at least on time every single month.

The most important steps you can take include paying all your bills early each month, keeping debt at a minimum, and refraining from opening or closing too many new cards.

If you follow this advice, your credit score should never hold you back from the life you want. Holly Johnson is a credit card and travel expert with a focus on rewards and loyalty programs and family travel in Europe and the Caribbean.

Follow Johnson on Twitter, Facebook, or Instagram. Select Region. United States. United Kingdom. Holly Johnson. Editorial Note: Forbes Advisor may earn a commission on sales made from partner links on this page, but that doesn't affect our editors' opinions or evaluations.

Not Checking Your Credit Reports Each Year Identity theft is fairly common these days, and statistics show that an array of hacking strategies aimed at consumers are on the rise. The good news is that many credit score dings are temporary and can be easily recovered. And oftentimes, actions like paying off a loan or applying for a new credit card will benefit you in the long term once you get past the initial fluctuation.

Below, CNBC Select outlines the five ways you may be causing your credit score to suddenly drop — whether you realize it or not.

Card issuers pull your credit report when you apply for a new credit card because they want to see how much of a risk you pose before lending you a line of credit. This credit check is called a hard inquiry , or "hard pull," and temporarily lowers your credit score a few points.

Hard inquiries remain on your credit report for two years, but FICO which most lenders use only considers inquiries from the last 12 months when calculating your credit score. But hard inquiries on your credit report aren't necessarily bad when they happen in moderation.

After all, applying for credit cards is a great first step in building credit. When you use credit cards correctly — by charging purchases and paying them off in full by the due date — they can help increase your credit score. To reduce the number of unnecessary hard pulls on your credit report, check if you qualify for a new card by using issuers' preapproval or prequalification offers.

These won't guarantee that you'll be approved for the specific credit card, but they'll give you a good idea. When it comes to actually applying for new credit products, be sure to spread out your credit card applications over time. Only apply for a new credit card every three months, and maybe wait even longer between applications if you have a lower credit score.

Credit cards are convenient for making large purchases because you don't need to pay all the money upfront, but leaving a high balance on your card will report a higher credit utilization rate CUR to the credit bureaus.

Your utilization rate, or your debt-to-credit ratio, measures how much credit you use compared to much you have available.