Aspiring Investment Management Analysis specialist
Your creditworthiness heavily relies on your credit score. The higher your FICO rating is (more than 630), the lesser interest you might pay on credit lines or loans. Payment history, credit utilization, credit history length, credit mix, and new credit are a few factors that affect your score.
How about those actions that could make your credit score turn bad or even worse? There are several things that you should not do. In this article, we’ve rounded up the financial mistakes that can damage your credit score.
1. Delaying payments
35% of your credit score is based on your payment history. It’s recommended that you should have consistent and timely payment. While a single late or missed collection will not immediately ruin your payment history, making it a habit would definitely turn your credit score sour.
Delayed payments are actually a good thing to the creditor’s side. They would surely love to receive money from your late fees and jack your interest rate higher. You, on the other hand, will end up suffering in paying immediate fees for the missed payments and higher interest rates on later credit lines or loans.
2. Neglecting Remaining Balances in Credit Cards
Another bad outcome of delayed payments is the remaining balance spike. If this happens, expect that your credit score will drop low. This situation typically happens if your outstanding dues are on your credit card, and you weren’t able to pay it off immediately. What’s worse is that extended credit takes 30% of your credit rating.
Closing your credit cards that have outstanding balances isn’t a solution either. In fact, it would worsen your credit rating. You may opt for unsecured loans for the meantime. Check bad credit loans here. But as the word ‘bad’ implies, it will still bring you some financial risks. Next time, keep in mind how much credit is extended, make a timely payment, and keep your remaining balance as low as possible.
3. Solely Relying on Unemployment Benefits for a Long Time
To be clear, being unemployed isn’t a financial misstep. We understand that you have your personal reasons. However, staying unemployed while relying on unemployed benefits for a long time isn’t good and would surely affect your credit score.
Creditors typically don’t know that you’re unemployed, but they can notice the reduction in your salary. Having a lesser income would surely affect the timeliness of your payment. Despite this, your unemployment rates would continue to increase, which eventually damages your credit score.
4. Disregarding Financial Obligations
Say, your interest in a loan is increasing, and you have insufficient money because you’re unemployed, you would end up prioritizing paying the said loan, right? But how about your other bills? Do you think they wouldn’t affect your credit score?
Most companies for utilities, cable, or medical do not report regular payments. Yes, they poorly affect your score. But it’s best to set up a payment plan with these companies. Keep in touch with each company’s agent or representative to avoid having troubles in the future.
5. Having Private or Government Liens
Any liens, regardless of the cost, can hurt your credit rating. Your credit score will improve once you pay your lien off, though. Still and all, liens would be included in your credit history, which may last for 7-10 years, likewise to bankruptcy.
If a lien is private or wasn’t imposed by the government, you can have it removed by petitioning to the credit bureaus. It typically consented once in a blue moon. But if you want cleaner credit history, it’s worth a try.
6. Applying Multiple Credit Requests Within a Short Period
If you’re planning to hand in applications for two credit cards this February, then a car loan in May, and a consolidation loan in the following month, think a couple of times. Doing so will plummet your credit rating, for sure.
Credit bureaus take several consecutive credit requests negatively. If it’s multiple requests in one credit line, that’s safe. Those applications would be grouped as one inquiry. By contrast, if you are applying for new credits for more than one credit line, be mindful of the number of your applications.
One more thing, be aware of the differences between various home equity loans. Many borrowers tend to get confused about these two: home equity lines of credit (HELOC) is the one that may negatively affect your credit rating, while home equity installment loans (HEIL) will not.
Check your credit report periodically. Credit reporting agencies might assume they’re all-knowing, but no. They can still make mistakes. If you notice some inaccuracies, proactively ask them to fix those errors right away. Otherwise, it could potentially cost you thousands of dollars in the future.
Tiffany Wagner is currently taking a degree in Investment Management Analysis in her junior year in college. In the context of decision making and business strategy, she focuses on finance and information interpretation.