Can One Bad Account Ruin Your Credit Score?

One of our readers, Dustin, sent us this question:

I monitor my credit frequently and I seem to have capped on score increases. About 6 years ago a family member used my identity to gain credit and goods and as a result I have spent the last 6 years raising my score and being meticulous when it comes to
paying on time, etc.

My scores were as low as 420 and now they are right around 630.

I have one account that I was never able to get removed and it is just sitting there in the midst of good accounts on my reports. It reads on the report “Derogative” and has a balance of $380; yet it also says write-off as well. I have consulted with the company and they are not requiring the debt to be paid… BUT is this the reason the scores have stopped going up? Even though this creditor is NOT reporting in my “accounts past due” section?

I am really trying to figure out how to get my scores to 700 and it seems as though they are at a halt… Any suggestions?

Dustin,

Thanks for your question!

The short answer is no, this account is most likely not what is keeping your credit score from going up – unless it’s a recent account.

This is because the credit bureaus and FICO consider your current credit activity more important that your past credit activities. If that account is over a year or two old, (since it was written off) then it is definitely not your problem.

So what’s going on?

I am assuming, that since you have raise your score from 420 to 630 that you have gotten into the habit of paying your bills on time. As long as you are paying your bills on time, then you are going to have to look a little deeper into your situation for the answer.

How much of your total available credit are you using? If you are carrying a revolving balance on any cards at all – pay them off as quickly as possible. That will increase your score.

Once you have all of your accounts paid on time, and your balances paid off, you should take a close look at your other lines of credit (besides credit cards).

Do you have a mortgage? An auto loan? Can you start sending in a little extra to get them paid down faster?

The reason I am bringing up your total amount of debt is because your debt – to – credit ratio (The total amount you are able to borrow vs. the amount you have already borrowed) is 30% of your credit score. If you really want to raise your credit score up over that 700 mark, then make sure you keep the total amount you have borrowed under 20% of your total available credit on your credit cards, and pay down any other loans as quickly as possible.

Once you are sure that you are paying on time, and your revolving balances are as low as possible, then you will need to take a look at which types of credit you have. If you do not have a mortgage or an auto loan, this could be one of the reasons your credit score is not going up as fast as you would like it to. Now, I am not telling you to go out and borrow a bunch of money for a house or a car!

Just understand that what’s known as a good “mix” of credit does matter. If you do not have a mortgage or auto loan, and you still want to boost your credit score, then I would recommend investing in a CD. You then use the CD as collateral for a personal loan from your bank.

As long as your bank reports the loan to the credit bureaus, then paying off that loan will raise your score as well. The beauty of this trick is that you just put the money you borrow into a savings account, and let it earn a bit of interest for you while you are paying down the loan.

For more information on this you can check out our article: How to use a CD and Personal Loan to Raise Your Credit Score.

Opening up a credit card for improving credit may help you too. Just do not apply for too many accounts at once because the inquiries will lower your score slightly. Leave any new accounts that you open alone. Do not charge on them. By having unused credit you will decrease your debt-to-credit ratio and raise your score.

One last thing to consider. Make sure that you are not an authorized user on anyone else’s account. It’s ok for them to be listed as authorized users on your credit accounts since you are managing your credit wisely.

It’s just that if you are listed as an authorized user on a relative’s account, and they are not managing their credit properly, then that will lower your score – even though you aren’t the one responsible for the debt.

Here are a few articles that go into more detail about each of these issues. If you check them out, they will give you more detailed information about how to raise your score.

• The FICO Score Breakdown
• What is a Good Mix of Credit?
• How to Raise Your Credit Score In 7 Easy Steps
• Can Your Spouse Hurt Your Credit Score? The Good, The Bad, And The Ugly
• Do You Have to Use Your Credit Cards to Have A Credit Score Over 700?

Thanks again for your question!

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