Credit can be rough and full of woes, and if you’re like most Americans you’re dealing with troubling tales of your own. The American Dream is full of debt, and upwards of 18% of Americans believe they’ll die before they ever break even. That’s a depressing statistic, but a key insight into why a lot of us don’t have warm and fuzzy feelings about creditors.
Nevertheless, the way the world works right now, they’re a necessary component of our economy and aren’t going anywhere anytime soon. So you might as well stay on their good side. Bad credit is more than just an inconvenience, it’s a heavy burden that affects your future with far reaching ramifications. Everything from home loans to insurance premiums to interest rates become much more difficult when your credit score is low. Unfortunately, a low credit score can also happen relatively easily as a result of a few simple mistakes.
Maxing Out Your Credit Card
When it comes to credit cards, missed payments are the thing everyone always talks about. While it’s true that those issues will absolutely have a negative impact on your score, one little known fact is that so can simply maxing out your card in the first place. It’s all about debt usage ratios. If the credit card companies see you have no ability to spend and only owe, they get nervous. FICO reports that having maxed out cards could cost you up to 45 points, even if you’re making payments on time. The simple solution? Pay down your cards before your next statement is posted, or don’t run so close to your limit in the first place.
The most obvious offense on the list, yet still a factor many don’t consider—a late payment will get you hit with more than just a fee. Your credit score is going to go down. The thing is, payments on loans or credit cards aren’t the only way that can happen. Utilities, services, or general bills can all affect your score. Basically, any time you owe a business money and you don’t make good on your payments they can report you to the creditors. The good news is, they’ll normally wait at least 30 days until they do, but it’s best not to push it. Just pay on time every time.
Insurance can be a nightmare. Who was supposed to cover that last bill? You? The insurance company? What percent? Maybe something got messed up along the way which is all too common, and while you’re busy trying to sort it out the bill didn’t get paid. Having a late or delinquent medical bill on your credit reports is terrible for your credit score. Having a single significant medical bill go to collections has been known to make scores drop 100 points. This is all in flux at the moment thanks to new laws and regulations concerning this sort of thing, and our best and brightest politicians are doing what they do best by constantly fighting over it, but don’t let the bills get the best of you in the meantime.
There are far too many stories out there about a person who cosigned with someone who needed their help—a child, a significant other, etc—only to get hosed when things turned sideways. Helping someone out is all well and good, but cosigning with someone else isn’t throwing them a life preserver . . . it’s pulling them into your boat. Anything that happens to them is going to take you down too. This is also true of leases or putting joint names down on a security bill. Obviously, there are situations where it’d be poor form to refuse to share responsibility with others. Just make sure to be careful and smart about who you trust, because this is your financial future we’re talking about after all. If your boyfriend or girlfriend of a few months wants you to cosign to help them get financing for a new big screen TV you should probably go ahead and not do that. If they really do care about you and they’re a decent person they won’t take it personally.
Closing Out Accounts
Here’s a surprising one. Closing out credit card accounts is perfectly alright, especially if you feel like they’re costing you money or if you just want to streamline your finances. However, apparently, if you close out numerous accounts at once it could lower your rating. Unreasonable? Sure. Silly? Absolutely. These credit agencies are fickle institutions.
Not Being Proactive
One of the biggest mistakes people make when it comes to credit is assuming that everything is fine. If you pay your bills on time and never have any issues, it’s easy to believe that your credit is golden. But you should still take a look. There might be a delinquent payment for something from years ago that you don’t even know or forgot about, or there could even be an error that’s not your fault at all. The bottom line is, you don’t want to put yourself in a situation where you need a good credit score for something, assumed that you had it, and find out that you didn’t. Because it could take a while to fix.
Also, if you’re already pretty sure your credit it terrible, you should still look into it rather than be resigned to a fate of rejected loans and high interest rates. You could always take steps to improve it, and it’s easier than you think. Either way, a website like credit.com will let you check for free and no, checking your credit score yourself will absolutely not automatically lower your score. Be proactive, and do your best to keep your score in good standing. That way, when the day comes when you want to buy a car or try a lease to own program, you’ll be ready.