Simple Ways We Ruin Our Credit Without Knowing It

By Caitlin in Credit
Simple Ways We Ruin Our Credit Without Knowing It

Unlike low-testosterone, a low credit score is more than just a number. In fact, a low credit score can be the difference between getting the home of your dreams, and living the rest of your life in that squalid apartment, or rendering that car of your fantasies to just that…a fantasy. Additionally, businesses are now utilizing credit checks as part of their application process, so a low credit score can also mean not getting that job you were hoping for to pay off your debts in an effort to earn a higher credit score. For all the things you need and want in life, a solid credit rating is becoming the necessary precondition for obtaining them. That said, many people are causing needless harm to their credit rating without even realizing it.

Maintaining Credit Card Debt…

Whether it’s simply a penchant for paying only the minimum required amount due each month, or you once heard that maintaining a balance on your cards is the way to build up additional credit, not paying off your credit cards every month is viewed as a bad financial move. In the same way that there are both good cholesterols and bad cholesterols, there is also good debt and bad debt. That said, credit card debt is universally seen as a bad debt. The reason for this is that credit card debt negatively skews your credit utilization ratio. Simply stated, this ratio measures the amount credit you are using and a high utilization rate translates into a lower credit score.

Cutting Up Those Cards and Canceling Your Credit Cards…

After bearing the cost of an expensive credit card payment for the past year you have finally paid it off, and in an effort to be true to the promise that you made to yourself while eating Top Raman for six weeks it’s time to, with much pageantry, chop up that card into tiny pieces. While this undoubtedly will give you a visceral amount of pleasure, from a credit score point of view this would prove a mistake. Although it may seem counter-intuitive, this step has the net effect of lowering your credit rating because of that pesky credit utilization ratio mentioned above. Again, this measures how much of your credit you are utilizing against how much available credit you have. As an example, if you had two cards with equal limits and destroyed one of the cards, then you would have just halved your available credit while effectively doubling your utilization ratio, which can have very negative connotations for your overall credit picture.

A Healthy Mix of Different Types of Credit…

Diversifying your credit portfolio does not mean adding a MasterCard to the Visa and American Express cards that are already in your wallet. When lenders are looking at your credit ratings they are looking for a mix of credit that includes revolving credit (credit cards), and installment loans such as mortgage or automobile loans. This shows lenders that you are capable of handling multiple forms of credit, which in turn will make your application appear even more appealing to them because it will provide them more information about your credit habits on which to base their lending decisions. Click here to see how your credit score is calculated.

Failing to Check for Credit Report Errors…

As you leave the grocery store you have that nagging suspicion that the check-out clerk double charged you for the bag of Romaine lettuce you bought. As such, once you have made it back to your car you pull out your receipt and proceed to scour it for proof of your suspicion. Once proven, you self righteously storm back in the store with the receipt and bagged lettuce clutched in your hand, demanding financial recompense. Oddly enough, although you went through heroic measures to recoup that $1.24, very few people bother to check their credit scores for any signs errors or omissions, which can end up costing you significantly more than the buck and a quarter you were overcharged at the store. Knowing what is on your credit report puts you on the same page as the lenders who are basing their lending decisions on the information that is provided. Removing erroneous information can give an excellent boost to your rating so it behooves you to locate, identify, and remove any deleterious information that has been erroneously placed in your file.

Keeping on top of your credit game is critical to maintaining a healthy credit rating, and understanding what adds or subtracts from that picture is the first step in managing your overall credit status. That said, always remember to pay off all your credit card debt each month, don’t cancel your cards out of spite, maintain a diverse credit portfolio, and knowing what is on your credit report will keep you on top of that credit game.


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