The 5 Ways You're Ruining Your Credit Rating

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The 5 Ways You're Ruining Your Credit Rating

by: JasonLancaster | Total views: 2 | Word Count: 658 | View PDF | Print View
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Protecting your credit rating isn't easy. Credit cards, auto loans, home equity loans and our suspect health insurance system can ruin your credit score. From easiest to hardest, here are the dangers you need to look out for:

1. Credit card closure:

Many people close credit card accounts as soon as they pay them off, making this the easiest and most common way that credit ratings are damaged. In fact, I've seen credit scores drop one-hundred points in as little as two months because a misguided consumer closed a couple of credit card accounts. Closing an account hurts your rating because it decreases your "percentage of credit available." Credit scores are based on many factors, but this percentage is one of the most important. The more available (or open) credit you have, the higher your credit score will be. Unless your credit card has an annual fee, NEVER cancel it. In fact, make sure you use it at least once a year to maintain your account -- just don't buy anything that you can't pay off as soon as the bill comes.

2. Spending to the max

Spending all the credit you`ve got is a danger sign to banks, who are looking for reassurance they'll get back the money they've lent out. A credit card with a high limit but low to no balance indicates a responsible consumer who is likely to repay debts. Maxing out your credit cards creates the impression you're spending more than you can afford to pay back, and drops your credit rating. The best remedy for this is to apply for more credit cards and request a higher limit for existing credit cards. Just take care not to spend this extra credit, or your rating will get worse!

3. Medical 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 Gone Wrong

We've all been asked to co-sign a loan by a friend or relative, and while this can be a great way to help someone close to you, it can also result in your credit being ruined. It's very important that you consider the following before co-signing -- YOU are responsible for whatever happens. That means if the person you co-signed for doesn't make the payments, you're expected to. If they file for bankruptcy and include your co-signed loan, the bankruptcy will show on your credit report (even though you haven't filed). Finally, even if you have PROOF that the other person is responsible (i.e. a divorce decree, a statement from that person, etc.) your credit will still be affected by anything they do (or don't do). My advice -- don't co-sign for anyone unless you can afford to make the payment yourself.

5. Late payments:

It's amazing to me, but a lot of people have a hard time remembering to pay their bills. In fact, I've seen credit bureaus of people that SHOULD have perfect credit but don't, simply because they can't remember to pay their bills before they're due. If you're one of these people, you should take immediate action. Visit your current bank, ask them about their "automatic bill paying" program, and enroll ASAP. Once you're enrolled, the bank will send out a check to your creditor automatically each month so you never have to remember. Besides helping your credit, it can save you hundreds of dollars of late fees each year.
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