The 5 Mistakes You’re Making that Ruin Your Credit Rating
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. Closing your account:
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. Maxed out spending
That’s right, aside from cancelling your credit cards, using them too much is the easiest way to ruin your credit. Banks like to see credit cards with a high limit, but with little or no balance. These “open” cards indicate a responsible and disciplined consumer. However, if your cards are maxed-out, you’re giving banks the impression that you’re living beyond your means, and your credit score is going to drop. The easiest fix here is to apply for more credit cards and to request a higher limit on the cards you have. Just make sure you don’t use this new credit — otherwise you’re just making your problem worse.
3. Health Insurance Mix-ups
We’ve all had this happen: your doctor’s office sends you the bill for something your health insurance is supposed to cover. Next thing you know, wires get crossed, the insurance company doesn’t pay the bill, and the doctor’s office turns the debt over to collection. Believe it or not, this happens all the time. To make sure it doesn’t happen to you, pay attention to every bill you get and follow-up with both your insurer and your doctor to make sure the bill is paid. It’s a little extra work on your part, but it’s well worth it — one single medical collection can drop your score 50 points.
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
Can’t remember to pay your bills? It could be the only thing keeping you from perfect credit! There are tons of people out there who do everything else right, but have poor credit simply because they pay their bills late. To make sure your bills are paid on time, every time, visit your bank and ask about an automatic bill payment program. Once you enrol in this, your bank will automatically send a payment to your creditor each month from your account. This will improve your credit by making sure you’re never late with a payment again, and can save you money by preventing late fees!
