The Five Worst Things You Can Do for Your Credit

The Five Worst Things You Can Do for Your Credit

Your credit score is a record of how you've handled your credit in the past and impacts how you much credit you can acquire, how high your car payments will be and more. Whether you are applying for a credit card, personal loan, home loan, auto loan, car insurance or a loan to finance your business, banks and financial institutions review your credit score first. It's what determines your creditworthiness and interest rates. If you have a poor credit score, you could be asked to pay an additional security deposit as well.

Here are the five worst things you can do for your credit:

1. Late Payments

Thirty-five percent of your credit score is based on timely and consistent payment. One late payment is unlikely to affect your credit score but you should still avoid it. If the late payment becomes a habit then your credit score is bound to take a hit. In the short run, you would be charged late payment fees and in the long run, you would be penalized with a higher interest rate. Other than credit card bills and loan repayment, late payment on utilities, rent and phone bills can also have an adverse effect i\on your credit score.

2. Non-Payment of Dues

Defaulting on payment of your credit card bill or loan is worse than a late payment. Every time you fail to make your monthly payment your credit rating takes a beating which can be very difficult to repair. It increases the chances of your account being charged-off. It is also important that you clear any outstanding dues that you owe to private and government institutions when it is due.

3. Closure of Crucial Credit Cards

There are certain credit cards you should definitely not close to maintain a good credit score. Closing a paid-off credit card or one with available credit would affect your credit utilization ratio and credit history. The reduction in your total credit amount due to the closure will increase your credit utilization ratio. Fifteen percent of your credit score is your credit history and so closing an old card is not a good idea. Besides, closing a credit card that still has balances can appear as though you have maxed it out, causing the credit limit to drop to zero.

4. Long Period of Unemployment

Unemployment is a personal problem but the result is a credit problem. Creditors are not concerned with the unemployment per se.  But prolonged unemployment will reduce income, which in turn will affect your ability to pay your bills on time. Long term unemployment is bound to affect your credit score.

5. Bankruptcy

Filing for bankruptcy can kill your credit score. So it’s a good idea to exhaust all possible options before going for this option. Like bankruptcy, a lien also stays on your credit report for about seven to10 years. A lien on property adversely affects your credit score until it is paid off.

Take the necessary steps to maintain a good credit score — it’ll help you not just in securing credit but also more favorable terms.