Credit scores can change often, sometimes for the worst. Avoid these five surefire ways to send your score tumbling.
1. Missed or late payments
Perhaps the most important thing that you can do to protect your credit score is to make all payments on all accounts on time, every time. Aside from the associated late fees, even one late payment can threaten your financial health by lowering your credit score (thus increasing the interest that you may be charged on loans). Even if you don’t intend to apply for a loan any time in the near future your one late payment can still cause all of your current creditors to increase your interest rate, still causing you to spend more on interest related fees.
2. Too many low limit credit accounts
Credit accounts with low limits suggest no experience with higher level limits, a red flag for some creditors. Rather than carry several low limit credit cards it is better to work on building your credit limit with one or two cards. In addition to the fact that excessive credit file inquires damage your credit strength, these smaller limit cards are easily maxed, which is also a sure fire way to lower your credit score.
3. Closing long term accounts
The length of time that you have held accounts positively impacts your credit score. It is important to hold onto those because they demonstrate a responsible history with credit. The longer you have an account the stronger your credit score.
4. Maxing credit cards
Responsible credit card use requires that you use only a portion of your available credit. Maxing your credit cards suggests to lenders that you cannot manage your spending and that you are overextended, which probably means that you will not be a good risk for new or additional lines of credit. Try to restrict credit use to a third of your available credit. As much as possible, pay off outstanding balances each month; the age of your debts can also impact your score negatively.
5. Paying only the minimum
When you pay only the minimum creditors may regard you as a poor risk because you seem overextended. Not only can paying only the minimum reduce your credit score it can also cost you thousands of dollars over the life of the debt or loan. As you probably know, interest continues to accrue on any outstanding balances. If you aren’t careful you could end up paying twice or even ten times as much as the initial cash price of that great item you just couldn’t pass up.
Protecting your credit score requires just a little diligence and a lot of discipline. Families should sit down together to discuss financial goals and plans. When everyone is moving in the same direction it is far easier to get to where you want to go.