Maintaining a healthy credit score can seem like a hassle, but it often comes down to avoiding some surprisingly common pitfalls. Many unknowingly engage in behaviors that can negatively impact their credit, leading to costly consequences.
This article will explore ten financial habits that can secretly ruin your credit score. You can proactively protect and improve your credit health by identifying and understanding these habits.
Late Payments
One of the most significant factors in determining your credit score is your payment history. Late payments, even just a few days past their due date, can significantly damage your score. You must pay all bills and debts on time to avoid this issue.
Maxing Out Credit Card Limits
Another factor that can harm your credit score is using too much of your available credit. When you max out a credit card, it signals to lenders that you may be relying too heavily on credit and could have trouble paying back your debts. Keeping your credit card balances below 30% of their limits is best.
Co-Signing Loans
Co-signing a loan for someone else can seem like a kind gesture, but it can also negatively impact your credit score. If the individual you co-signed for makes late payments or defaults on the loan, it will also reflect on your credit report.
Closing Old Credit Accounts
Closing old credit accounts may seem like an excellent way to simplify your finances, but it can harm your credit score in the long run. The length of time you’ve had credit accounts open is a factor in determining your credit score, so closing old accounts can shorten your credit history and lower your score.
Applying for Multiple Credit Cards
Applying for a new credit card results in a hard inquiry on your credit report. Too many hard inquiries can indicate to lenders that you are taking on too much debt and may negatively impact your credit score. It’s best to limit the number of credit card applications you make.
Ignoring Your Credit Report
Your credit report contains all the information used to calculate your credit score, making it essential to check for errors regularly. If there are any mistakes or discrepancies in your report, they could be dragging down your score without you even realizing it.
Not Diversifying Your Credit
A mix of credit types, such as credit cards, loans, and mortgages, can positively impact your credit score. If you only have a kind of credit account, your score potential could be limited.
Using Payday Loans
Payday loans may seem like an easy solution for short-term financial problems, but they can be highly detrimental to your credit score. These loans often come with high interest rates and fees that can spiral out of control if not promptly paid back.
Defaulting on Debts
Defaulting on any debts will undoubtedly harm your credit score. It’s crucial to communicate with lenders if you’re having trouble making payments, as they may be willing to work out a payment plan.
Failing to Budget and Monitor Spending
Lastly, not having a budget or actively monitoring your spending can lead to financial habits that harm your credit score. Without keeping track of your expenses, you may overspend and struggle to make timely payments, leading to late fees and potentially damaging your credit. Creating a budget and sticking to it can help prevent this issue.
Disclaimer – This list is solely the author’s opinion based on research and publicly available information.
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