Four Ways to Ruin Your Credit

Your credit score says a lot about you. It paints a picture of your financial practices that can affect your ability to borrow money, buy a home and even land a job. Yet, despite its importance, many people are surprised to learn that credit can go from good to bad in no time at all. And, most often a few bad borrowing practices are to blame. Here are four of the best ways to ruin your credit. 

1. Making Late Payments

Everyone forgets to make a payment at least once in a loan life cycle, but multiple mistakes can add up fast on your credit score. If you have a habit of paying your loans late, your practices are reported to the credit agencies, which can have a detrimental effect on your overall score. In fact, past payment history is one of the main factors affecting your credit score. 

2. Maxing Out All Your Cards

Credit agencies calculate something called credit utilization ratio, which takes into account your available credit and how much of that credit has already been used. So, for example, if you have three credit cards all with a max limit of $5,000, and you carry a balance close to that limit on every card, you look like a borrower that has overextended. This is bad for your credit score. Instead of maxing out your cards, try to keep your debts between 10% and 30% of your limit. 

3. Failing to Check Your Credit Report 

Credit reports are there for a reason, but many people fail to take advantage of the opportunity to ensure that they’re accurate. Think about it. This is your time to check the work of those giving you the scores. If you see an error, don’t let it go. Report inaccuracies before they become part of your permanent record. Because, left alone, certain errors can wreak havoc on your overall score. 

4. Having an Account Charged Off

When you don’t pay your bills for several months at a time, you run the risk of having your account charged off. This means you will no longer be able to make purchases using the account. While you still owe the remaining balance, the charge off is reported to the credit bureaus at an extreme cost. A charge off will remain on your credit report for up to seven years and your score will drop significantly. So, avoid charge offs at all costs. Even if you can only make minimum payments on your accounts, that’s much better than running the risk of your score taking a big time hit.