Completely Avoidable Habits That are Ruining Your Credit

Completely Avoidable Habits That are Ruining Your Credit

Written by Caitlin Wood
Last Updated June 2, 2021

Unfortunately having bad credit is something that most people experience at least once in their lives, it’s easy to over spend, not stick to a budget and make simple financial errors that can and will put your credit score at risk. We’ve compiled a list of some of the bad financial habits that are completely avoidable yet might be ruining your credit.

Too many credit checks

If you’re trying to build your credit or are simply trying to keep better track of it you might think that ordering several credit checks a year is a good idea. Having two credit checks in a year is ok but having three or more could potentially negatively affect your credit rating. Remember that when you apply for a new credit card, get a loan for a car or are look into purchasing a new home credit checks will be performed. The credit agencies might find it unusual that you’re trying to get so much credit in a small period of time so make sure you think about this before you order a credit check yourself or apply unnecessary credit.

Not using a credit card

If you have never had a line of credit, a loan or used a credit card then you don’t have a credit history. This becomes an issue later on in life when you need to buy a car or you wish to purchase your first home. The banks and other lenders want and need to see that you not only have a credit history but that it’s a good one. Having a credit card and using it properly by paying it off every month on time and in full is a great way for you to start building your credit right now. That way once you want to invest in a larger item like a home there should be fewer issues.

Missing more than one mortgage payment

Missing even one mortgage payment is not a good idea especially if you’re actively trying to improve your credit score. But if you already have a good credit history, the bank that you have your mortgage with might forgive you for missing one payment but more than one could leave a black mark on your credit history.

Having too much debt

Obviously having too much debt and several maxed out credit cards is a bad idea but did you know that it could prevent you from being able to get any more credit even for necessary things like a car or a home? Even if you’re making the minimum payments each month on all your credit cards, having several large balances on your cards can have a serious negative affect on your credit history.

Serious misuse of credit cards

  • Maxing out several if not all of your credit cards. This will show present and potential future lenders that you have no control over your spending and are a high risk debtor.
  • Having many low-limit credit cards. This tells future creditors that you aren’t eligible for and can’t be trusted with a higher limit.
  • Open numerous accounts quickly. You’re not only reducing the average age of your credit history but you’re also allowing yourself to create new debt with these new accounts.
  • Apply for too many credit cards. You’re flagging yourself as a high risk.
  • Having constant balances above 35% on all of your credit cards. The ratio between available credit and used credit is a major factor in the calculation of your credit score.
  • Letting your friends or family members use your credit cards. When it’s not their credit card, people are less likely to use it properly.
  • Forgetting to check your credit report for potential problems and errors. Don’t over check your credit report but being aware of it is important.

Taking too long to pay back debts

Credit agencies need to see that you can pay off your debts in a realistic amount of time. Carrying a significant balance on a credit card for several years can seriously hurt your credit rating. Having a sensible balance each month and then paying if off completely will not hurt your credit, it will in fact show that you can handle paying off a loan properly. This goes for missing credit card payments as well, make sure you make your payments on time so that you won’t ruin your credit rating.

Closing paid off accounts

If you’ve finally paid off a credit card or loan that you’ve been struggling with for years you might think that closing it is a good idea, but this could hurt your credit rating. If you close a credit account it might have a negative effect in your utilization ratio, which is the ratio that shows the amount of credit you have with the amount you’re actually using. Instead of canceling a credit card to prevent yourself from using it, use the card to pay off a bill each month and don’t take it shopping or out to dinner with you. This way you won’t hurt your credit rating by cancelling it but you also won’t max it out again.

Not varying your types of debt

Having a small amount of debt and making payments towards paying it off is of course one way to start building your credit score. But what most don’t realize is that having a variety of types of debt plays a huge role in how your credit score is calculated.

  • Having some kind of installment, like a car loan, shows that you’re capable of making monthly payments on time and in full.
  • Don’t rely solely on your credit card or other revolving door debt, it’s good to have some but having many credit cards could negatively affect your credit score.

Constantly updating your credit card

There are endless types of credit cards to choose from and every time a new one arrives on the market it seems better and more convenient than the previous ones. It can be confusing to decide which one is best for your lifestyle. When you first look into getting a credit card you should do your research and play the field. Making the right choice first will make it less likely that, in the future, you’ll want to switch your card for a newer one.

It’s in the best interest of your credit score for you to stick with the credit card you already have. Lenders want to see that you are loyal to them and if they see that you are constantly applying for new credit cards it can and will reflect badly on your credit history.

Maintaining a good credit score can be a tricky thing to do, there are many variables that effect how your score will change. Educating yourself and being smart about your money and spending habits should be at the top of your priority list when trying to improve your credit. Break some of your bad habits and you should be on your way to a good credit score.

Want more information? Check out this article on The Top 10 Mistakes When Trying to Improve Your Credit.

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Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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