If you took advantage of getting your free FICO credit score, congratulations! You now know what lenders know about you and you’re in a much better position to take charge of your personal financial situation. But did you know there are ways you could kill your credit?
The problem with credit scores is that most people don’t even know they have a problem until after the fact. Your credit score is an asset, and like many assets, you can damage or even lose them if you aren’t careful. And if some rich guy on the radio claims you don’t need a credit score, remember that it’s used by employers, utility companies, and landlords too. A good score only helps you, whether you use credit or not.
What behaviors can kill your credit score?
1. Failure to pay your bills
On time payments are the best way to build your credit score and failing to pay on time is the best way to kill it.
2. Neglect
Neglecting to ever check your score or your credit report means that lenders are sharing information about you that you don’t know. Don’t bury your head in the sand. Don’t neglect your credit score and don’t neglect to check it.
3. Procrastination
Paying your bills is important, but it only counts FOR your score when you pay on time. Don’t procrastinate paying any bills that come due. Better yet, set those bills up on an automatic payment schedule and you won’t have to worry about it.
4. Closing accounts
You may think that closing an account will help your score, but that is rarely the case. Old accounts lengthen your credit history and give lenders a broader view of your payment habits.
5. Shredding old accounts
It may feel good to shred that old credit card in favor of a new debit card, but again, there is a significant advantage to having a long credit history.
6. Applying for too many new accounts
Attempting to open too many new accounts in a short period of time can cripple your credit score. It appears that you’re trying to get some quick cash and lenders know that people about to declare bankruptcy have multiple inquiries just prior to filing.
7. Only one type of credit
FICO credit scores give you more recognition for a blend of different credit types rather than a lot of just one type. Lenders like to see a credit card or two, a mortgage, an installment loan, bank accounts in your name, utilities, etc. It’s FICO’s way of seeing how you handle multiple situations.
8. Using too much credit
If you charge every account to it’s maximum, lenders get really nervous. Part of your credit score is what’s called your “credit utilization rate.” It’s the ratio of how much debt you have in relation to how much credit you have available. For revolving credit like credit cards, strive for no more than 30 percent.
9. Handing over the reins
Never trust some other company to “improve your score.” No one can do that and despite claims to the contrary, the best and most consistent way to improve your credit is by plodding along, making on-time payments and using some common sense (and these tips!).
You can take charge of your credit score
Do the right things, in the right way and your credit score will improve. Time is the best way to improve it and impatience can be the best way to kill it.
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Hi Ron!
Good points there, but I have another question: does paying your credit ahead of schedule improves your score?
Andrzej
Nothing I’ve read has indicated that it does, however you WILL pay less in interest!
To be honest, I don’t worry a lot about credit scores. I have no debt, pay my bills on time every month, can self-fund any emergency expense and have had the same accounts for years.
You probably have a very high score as a result. Most people don’t check their credit report regularly and are very surprised when the find out their credit score is low because of a missed payment or too many inquiries.
I knew of one guy who had his identity stolen … “borrowed” is more like it … by someone who used HIS information to get several credit cards, get medical care, and get an apartment. The thief even made payments on time, basically assuming another identity. But when the thief lost his job and started missing payments while applying for more credit, and my friend decided to apply for a car loan, it hit the fan. He is STILL sorting out the mess 4 years later.
It would be worth checking your credit report at annualcreditreport.com (free).
I like canceling credit cards despite the damage it will do to one’s credit score. I used to have a lot of credit cards, but I have since canceled most of them. Despite the temporary hit on my credit score, I like not being tempted by so many cards that I never should have signed up for in the first place. I judiciously canceled the newest ones first leaving my oldest debt. Since I rarely carry a balance, my credit utilization ratio did not increase that much.