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These days, keeping a good credit rating requires navigating a dangerous maze of credit cards, home equity loans, auto loans, and an uncertain health insurance system. Here's a list of the top dangers to your credit score, from easiest to hardest:
1. Credit card closure: Closing your credit card as soon as it's paid off is the easiest way you're probably ruining your credit. A closed account decreases your "percentage of credit available", one of the most important factors in calculating credit score. Taking away from this percentage by closing an account can drop your credit score by as much as 100 points in just 2 months. Keep your credit rating high by keeping as much available credit as possible, and never cancel a card unless it has an annual fee. And make sure you use your card at least once a year to make an affordable purchase - this keeps your account active and contributing to your available credit. 2. Spending to the max Banks like to see credit cards with high limits and minimal balances. These "open" cards are a sign of a financially responsible borrower they're likely to get their money back from. A maxed-out card, on the other hand, creates doubt about whether the card holder can afford their purchases, and leads to lowered credit scores. Applying for new credit cards and requesting higher limits on existing cards can help to fix this problem. 3. Medical Debt Collections Imagine this scenario: your doctor sends you a bill and you send it to your insurance company, thinking your policy covers it. Turns out, it doesn't, and the company doesn't pay your bill. So the doctor's office turns the unpaid debt over to collections, wreaking havoc on your credit score. Sound scary? It's a lot more common than you might think! Make sure this doesn't happen to you by paying close attention to all your bills, and double-checking with both your doctor's office and health insurance company to make sure every bill is paid. Sure, it might take some time, but the 50 points you'll save on your credit rating will be worth it. 4. Co-signing: You've probably had family or friends ask you to co-sign a loan for them, and it might sound like a great idea. After all, why not help out someone you care about? But co-signing a loan is dangerous territory, credit-wise. You assume equal responsibility for the debt, and if the other person doesn't pay up, you're expected to. And if your co-signer files for bankruptcy, that'll show up on your credit report, even if you don't file anything yourself. Even if you can prove that the unpaid bills are your co-signer's fault, your credit rating will still suffer. Don't co-sign for anything, no matter how close the friend, unless you can afford to pay it yourself. 5. Paying Bills Late "Hey, my bills are getting paid. What's the harm if they're a little bit late?" Turns out, paying late can ruin an otherwise perfect credit score. Make sure your bills are paid on time by inquiring about and enrolling in your bank's automatic bill payment program. Your bank will automatically send your creditors a payment from your account every month, so you don't risk forgetting due dates, which can damage your credit rating and cost you hefty late fees. |
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