Credit Mistakes – The Quickest Way to Tank Your Score
A high credit score takes years of smart choices, discipline and work. But, you can send your credit score plummeting by hundreds of points in seemingly no time at all. What actions will do the damage the quickest? Read on to learn and know which credit mistakes to avoid.
Not Paying the Bill
If you forget to pay by a few days, your credit card company will probably be understanding, particularly if you correct the issue quickly. But, do it a few times, or let a bill go more than 60 days past due, and you will see a precipitous drop in your score. There are also probably rules in your credit card agreement that say that the company can impose a late payment penalty and increase your interest rate.
Applying for Every Great Card You Are Offered
Most of us get lots of credit card offers every time we turn around. They arrive in the mail day after day. They come in the form of online offers when you check your bank account or buy things online. While expanding your credit usage does help your score, there’s such a thing as too much of a good thing. Each credit inquiry lowers your score for a period of time.
And then, there is the temptation of having more available credit. If you increase your spending with your increased limit, you can wind up with bills that are hard to keep up with.
Maxing Out Your Cards
Do you think of your available spending money as your income, plus your available credit? Do you get carried away and not think of what you are charging? Getting too close to the limit can have a disastrous affect on your credit score.
One of the things that credit reporting agencies is how much of your available credit you are using. Ideally, you should use no more than 30% of your available revolving credit at any given time. Experts recommend, for the best credit scores, to keep it down below 10%. When your utilization tips past the 50% mark, it starts to do a number on your credit.
Once you start getting near the limits of your available credit, your score will fall sharply. Plus, it’s a self-perpetuating cycle. The higher your balance, the higher your minimum payments. And, paying only the minimum means that it will take longer to pay off your debt, which means you pay more in interest. This is a dangerous place to be, because it can mean that it’s harder to keep up with just your minimum commitments, which puts us back at the big score killer: failing to pay your debts on time.
Cleaning House on Debts
Some people feel that the best thing they can do to clear up their credit score is to close old or unused accounts. But, this has the opposite of the intended effect. If you close an account, it eventually falls off your report. The age of your credit history is part of what makes up your score.
Building a good score can take years of effort. Don’t undo your hard work by falling into any of the above credit-ruining traps.