Final answer:
Damaging your credit score can occur through late or missed payments, high credit utilization, and frequent applications for new credit. A low credit limit does not inherently harm good credit, whereas a high limit might help bad credit if it lowers utilization rates. Paying bills on time and keeping utilization low are key to maintaining a good credit score.
Step-by-step explanation:
Many factors can damage your credit score, which in turn affects your ability to borrow money and the terms you will be offered. Firstly, making late payments or missing them entirely is detrimental to your credit score. Persistent lateness or defaults can substantially lower your score, signaling to lenders that you are a high-risk borrower. Secondly, utilizing a high percentage of your available credit can indicate potential financial stress and can harm your credit. It is generally advised to keep your credit utilization below 30% to maintain a good credit standing.
In contrast, a low credit limit itself does not necessarily harm good credit. However, it may restrict your ability to spend and can result in higher utilization percentages with smaller expenditures. Conversely, a high credit limit can be beneficial for bad credit if it leads to a lower utilization rate, as long as you do not incur more debt than you can manage. Lastly, frequent applications for new credit can lower your credit score due to hard inquiries on your report, suggesting to lenders that you might be attempting to take on too much debt.
Improving your credit can be achieved by paying all your bills on time, keeping credit utilization low, and by being judicious about how often you apply for new credit. Remember that while building an emergency fund may be a slow process, responsible credit management is crucial for financial health and large purchases like automobiles. To maintain a good credit score, it's essential to pay off credit card balances quickly to avoid the accumulation of interest, which escalates the cost of the borrowed funds.