Building a healthy credit score shows you are financially responsible. With a good score you have access to good loan terms and can buy homes and cars without paying too much in interest. A good credit score and report can also get you into nicer apartments and get utilities turned on without putting down huge deposits. There is plenty of reason to get a good credit score and keep it healthy.
Once you have a good credit score, there are a few things you need to avoid like the plague. These actions can bring down your credit score.
Have you ever spent so much on credit that you maxed out one or more of your cards?
If so, you have already done one of the worst things you can do to your credit score. A big factor in how a reporting agency calculates your credit score is how much debt you have to the credit amount you have available. The higher your debt level is to available credit, the lower your score will be. For example, if a credit card company extended a credit line of $10000 to you, and you used $1000 of it, your credit score will be higher. But, if you used all the $10000, your credit score would be lower.
Have you ever missed a credit card payment?
You might think that missing a payment after a long time of never having a problem will not effect your credit score. However, it will cause your credit score to go down several points. A single missed payment will not be a permanent scourge on your credit score. However, more than one will start to bring your credit score down. Missing more than one in a row and you will see long-term damage to your score and report.
Have you ever applied for multiple credit cards at one time?
You might have gotten a new job and thought it would be a good time to get a new credit card or two. Credit card companies send offers in the mail. You may see advertisements online that say “Apply here.” So, you go for it. You send in applications for multiple credit cards, hoping one or two go through. Well, what you did was bring your credit score down. Credit Card Companies do a hard credit pull when you apply for a credit card. This will bring your credit score down a few points. When you apply for multiple cards at one time, you of course get hit several times.
Do you have credit cards but never use them?
If so, you are negatively effecting your credit score. That might seem illogical. You are managing your money and not using credit. That should mean your credit score remains high. But, the credit reporting agencies want to see how you use credit. Use is the operative word. Over time, unused credit will start bringing your score down. To counter this, occasionally charge something to a card and pay it off immediately. You should not be hit with interest charges and will start seeing your credit score go up.
Did you ever close an old credit card account?
Many people have old credit cards they no longer use. The card might have a high interest rate or a low credit limit. So, you closed the account. That hit your credit score in the wrong way. Credit card companies calculate your debt ratio by dividing your total debt amount to the amount of credit you have available. So, if you have $1000 in debt and $10000 in available credit, your debt ratio would be 0.10. But, let’s say you closed a credit card that had a limit of $5000 on it. That would lower your amount of available credit to $5000. Your new debt ratio would be 0.20. The higher your debt ratio, the lower your credit score.
Good credit score management requires knowing a bit of how reporting agencies use your credit use in their calculations. If you use your credit cards wisely, you will see your credit score go up steadily.