Building a solid credit history is one of the most important things you can do from a financial perspective. By doing so, you'll be able to borrow money more easily in the future and, more importantly, be able to qualify for a lower interest rate when buying a new home or car. Thus it is important to know what things will quickly ruin your credit if you are not careful. Here are the five easy ways to damage your credit:
Closing credit card accounts. By closing credit card accounts, you reduce your amount of available credit. A third of your credit score is a measurement of the amount of debt against your available credit limit. If you have to close accounts, make sure they are your newest accounts, as long-term accounts help bolster your credit score the most.
Not using your credit cards. Another easy way to ruin your credit score is to stop using your credit cards. Instead, use each of your cards at least once or twice a year. The amount doesn't matter; you can simply fill up your car with gas or buy a pack of gum. By keeping your accounts active, you insure ]the credit card company will continue to report your information to the credit bureaus and keep your account open.
Running up high balances. According to Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, "FICO does want to see a lot of credit, but it would rather see many low balances on several cards rather than one large balance." The closer you reach your limit, the higher your debt utilization ratio is-a large factor in determining your credit score, which can sting your credit score if you're close to maxing out your card each month.
Applying for new credit cards often. Applying for a new store credit card every time you set foot in your local mall is not a good idea. New credit accounts lower the average age of your credit history, and each application triggers a hard inquiry on your credit, which slightly dings your credit score. So, don't fall for a clerk's pitch to get you to open a store credit card by offering a relatively small percentage off your purchase.
Ignoring or missing errors on your credit report. Check your credit report at least once a year and have the credit bureaus fix any inaccuracies. You can visit AnnualCreditReport.com to get the free annual credit report consumers are entitled to. If you find errors on your report, don't assume they will get worked out eventually; it is up to you to contact the bureaus and get it straightened out.
Kyle James operates a blog called Rather-Be-Shopping.com where he writes about frugal living tips, personal finance advice, and easy to implement tips to make your paycheck go further every month.
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- credit score
- credit cards
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