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5 WAYS TO HURT YOUR CREDIT
Your FICO score, or
credit score, ranges from the lowest
score of 300 to a perfect 850. Your
score is determined based on factors
including whether or not you pay your bills
on time, how much debt you have as well as
how long you have had a credit history.
No matter if you are a consumer that is very
careful about managing and maintaining good
credit, it is still very possible that you
can jeopardize your positive credit faster
than you can say 'late payment'.
For example, even though closing out credit
card accounts that you don't use, or
combining all of your outstanding debt to
one card may seem like a good idea moves, in
actuality, you may be destroying your credit
rating.
Late payments
The simplest way to reduce your credit
score is by not paying your bills on time,
or by totally passing over a bill.
Being that your payment history determines
about 35% of your credit score, neglecting
to make the minimum required payment within
30 days of the due date could result in your
score plunging.
Say for example suppose you have never
missed a payment and have a credit score in
the low 800s or high 700s. Missing the
30-day grace period, could result in your
score dropping by 100 points or more!
As soon as you are delinquent for the firs
time, you are categorized with a different
class of consumers. Sure, you can make up
the 100 points over time. However, it will
take longer than it took for your score to
go down. Get more info about the
importance of paying credit card bills on
time.
High card balances = low FICO score
You are certain to bring down your
credit score when you max out your credit
cards, push your accounts to their limits or
even worse
go over the limit.
A rule of thumb to follow is that you aim to
maintain a balance on your credit accounts
that is no more than 30% of the available
credit lines. So, if you have a credit card
with a $1000 limit, try to sustain a balance
that is no more than $300. Learn more about
smart credit card use.
Statistics show that you are a better credit
risk and that you are able to exhibit
self-control when you have a lower debt
amount compared to your credit limit.
Debt-to-income also plays a very
important role in determining your credit.
If you are considering transferring credit
card debt into one account, you may want to
reconsider if your new balance if going to
be near your credit limit. We suggest you
read the section related to
credit card balance transfer tips.
Closing credit cards
Do you have a bunch of credit cards that
you do not use? Are you under the impression
that if you close these accounts out that
you will improve your credit score? This
assumption is wrong!
Being that part of your score is determine
on the amount of time certain lines of
credit have been open, closing out a 15-year
old credit card could take a chunk out of
your credit score total. Think about
it...you are eliminate a strong reference to
a positive credit history.
In addition, if you are seeking to reduce your
debt by jumping from one low-interest rate
offer to the next, closing cards along the
way, you are going to considered a credit
risk by any future potential lender.
Too many in-store cards
Store credit cards are very tempting.
Most offer between 10 - 15 percent discount
when you sign up. However, these card offers
will likely work against your FICO score.
It does not matter if you pay these cards
off quickly, establishing these types of
accounts one-after-the-other will likely be
considered abnormal credit behavior and
ultimately result in a damaged credit score.
Fines
A $50 parking ticket and $20 library
fine. So what, right? Don't dismiss these
penalties so quickly.
Nowadays, it has become very common for
municipal governments to turn any
outstanding fines over to collection
agencies. Collection agencies have the
capability of trashing your credit rating if
you you choose not to pay up. Not paying a
debt with a collection agency can result in
your credit rating dropping by 100 points or
more!
Not paying these types of petty fines just
does not make sense; especially when you
consider the potential damage that can occur
to your credit score and how much it would
cost you in interest as a result of higher
interest rates on a
mortgage,
car loan, or
unsecured loan.
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