You may not understand the importance of your credit score, but you really should. This is because your credit score is the number that lenders and creditors look at when deciding if you are worthy of a loan or credit card. It lets them know right away, all questions aside, what kind of credit history you have. You may think that you will never need a loan or credit card, but chances are you will need one or the other at some point in your life. That is why it is always a good idea to keep your credit score in good shape. Just as there are ways to keep your score at a good number, there are ways to hurt your score as well. You should try your best to avoid these things.
1. Paying Your Bills Late
Since your payment history makes up the largest percentage of your credit score, it is easy to see why paying your bills late will have a major negative impact on it. If you have a credit card or loan, you should make your payment on or before the due date every month to ensure you are never late. Late payments will not only hurt your credit score, but you will often have late fees imposed on your account as well. If you pay your bills on time, you will not have to worry about these things.
2. Carrying High Balances on Credit Cards
Another large portion of your credit score comes from your level of debt. This is determined by comparing the balances on your cards with the credit limit available on them. If you currently have high balances on credit cards that don’t have much credit available on them, this means you have high credit utilization. To keep your credit score at a good number, you should always try to keep your balances reasonable and as far under the credit limit as possible.
3. Closing Established Credit Cards
Some people think that closing unused credit cards will help their credit score go up, but that is not the case. The truth is you should always keep established credit cards open as long as they are in good standing. This is because the longer you keep a credit card open, the longer your credit history will be. Lenders and creditors will look at this history when considering you for a loan or credit card. The longer, more established your credit history, the better your credit score.
4. Applying for Multiple Loans or Credit Cards
The more applications for loans or credit cards you submit, the more credit inquiries on your credit history. Credit inquiries occur when you apply for an account and the lender or creditor checks your credit score. Too many credit inquiries can have a damaging effect on your credit score because it shows creditors or lenders that multiple accounts have been applied for. You should try to keep applications to an as-needed basis, and avoid applying for too many accounts in the same time-frame.
5. Filing Bankruptcy
If filing bankruptcy is the last and only option for you and your situation, be advised that it will have a major negative impact on your credit score. This is because much of your debt is being forgiven or written off, meaning you will never pay for what you charged or owe. Always try to keep a responsible credit profile and avoid taking on more than what you can afford. This will help you avoid bankruptcy and keep your credit score at a good number.
6. Getting Sent to Collections
If you stop paying on a loan or credit card account, the lender or creditor will often send your account to a debt collector, otherwise known as a collection agency. This means the lender or creditor will no longer try to get you to pay, but rather a third-party debt collector. This can and will hurt your credit score. Debt collectors are also rather persistent and will aggressively pursue you in an attempt to get their money, so avoid this type of situation at all costs.
It is not all that difficult to maintain a decent credit score. The main thing to remember is to never take on more debt than you can afford. Also, always be responsible and pay your bills on time. Avoid doing things that will hurt your score and you should be able to keep a good credit profile for a long time.
Guest post from Bailey Harris. Bailey writes for the Credit Score Guide.