5 Ways To Ruin Your Credit Score
Your credit scores seem to influence everything these days. Many employers will look at them before hiring a new employee. Of course, the bank bases their decisions about loan approvals very heavily on credit scores. Even insurance companies often look at your credit scores in underwriting your insurance policy.
So maintaining the best score you can is very important. Unfortunately, there are many ways you can ruin your credit score if you’re not careful! With this in mind, do what you can to avoid these top five mistakes:
1.Carrying high balances. A large portion of your credit score is determined by what percentage of your available credit you’re utilizing. If you have a total limit of $20,000 on your credit cards and you’re carrying balances that total $15,000, then you’re using 75% of your credit. The closer the number is to zero, the better. Though no one knows for certain, most experts believe the magic number is 30%. If you’re utilizing more than 30% of your available credit, your score is lower because of it.
2.Lack of timeliness. The largest portion of your credit score is determined by how well you pay your bills on time. Credit bureaus normally aren’t notified until you’re at least 30 days late. After that point, your credit takes a hit. The penalty to your score is even greater if you’re 60, 90, or 90+ days late. Paying your bills on time and, in those payments, paying off whatever you charge during the previous month helps to raise your score for both
timeliness and total credit utilization.
3.Lack of housekeeping. Most credit reports have errors and these mistakes might not be in your favor. At the very least, get a copy of your credit report annually (you can get all 3 for free once a year). Go through it and look for any erroneous derogatory information and follow the dispute process to make things right. As a rule, it’s a good idea to review your credit report at least 90 days before applying for any credit. It can take that long to get any errors
removed. Remember to plan ahead.
4.Canceling your credit. Some experts tell you to cut up your credit cards and throw them away. Doing that is fine; just don’t close the accounts. This is related to item #1. Again, imagine that you have $30,000 of total credit available to you (3 cards x $10,000 each). If two cards have a zero balance and the other has a $6,000 balance, you’re using 20% of your credit. If you cancel the 2cards with zero balances, now you’re utilizing 60% of your available credit. Ouch. The ideal situation is to have a lot of credit available to you, but carry as low a balance as possible.
5.Have limited credit. Many people think they are doing well by only having one credit card and not carrying a balance. However, your credit score will be higher if you have some varied forms of credit on your report.
A credit card or two, a store card, and a car loan would be much better. In this example, the car loan doesn’t have to be still open; just having a car loan in the past is fine. Be sure your credit history has some variety
concerning the forms of credit you’ve used.
Having a high credit score makes life a lot easier. It’s easier to get credit when you need it, and that credit is much cheaper, too. The interest rates you pay on loans and with credit cards, are largely a function of your credit score. Get that score as high as you can and you’ll save a boatload of money over your lifetime.
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