Credit scores are an essential aspect of financial stability. They determine whether you’re eligible for loans, credit cards, mortgages, and other forms of credit.
However, many people don’t realize that their habits can negatively impact their credit score.
In this article, we’ll discuss five habits that can ruin your credit score and give you some tips on how to avoid them.
Habit 1: Late or missed payments
The first and most common habit that can ruin your credit score is making late or missed payments.
We’ve all been there, and it’s easy to forget a payment, but it can have a significant impact on your credit score.
Payment history is one of the most significant factors that determine your credit score. Lenders want to know whether you’re reliable and can pay back the money you borrow.
Solution: Set up automatic payments or reminders.
If you’re forgetful, the best way to avoid late or missed payments is to set up automatic payments or reminders.
Many credit card companies and lenders offer automatic payments, which can deduct the amount due from your account on the due date.
Alternatively, you can set up reminders on your phone or calendar to ensure that you never miss a payment.
Habit 2: High Credit Card Balances
The second habit that can ruin your credit score is carrying high balances on your credit cards.
Credit utilization, or the amount of credit you’re using compared to your credit limit, is another significant factor in determining your credit score.
If you’re using a high percentage of your available credit, it can be a red flag to lenders and hurt your score.
Solution: Pay down your balances regularly.
To avoid high credit card balances, make sure to pay down your balances regularly.
Ideally, you should aim to keep your credit utilization below 30%.
If you have multiple credit cards, focus on paying down the card with the highest interest rate first, and then move on to the next one.
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Habit 3: Closing Old Credit Accounts
The third habit that can ruin your credit score is closing old credit accounts.
The length of your credit history is another significant factor in determining your credit score.
Closing old credit accounts can lower the average age of your accounts, which can negatively impact your score.
Solution: Keep old accounts open.
To avoid lowering your credit score by closing old accounts, keep them open, even if you’re not using them regularly.
If you have credit cards that you’re not using, make a small purchase every few months and pay it off immediately to keep the account active.
Habit 4: Applying for Too Much Credit at Once
The fourth habit that can ruin your credit score is applying for too much credit at once.
When you apply, the lender will typically perform a hard inquiry on your credit report, which can temporarily lower your score.
If you apply for too much at once, it can be a red flag to lenders and hurt your score.
Solution: Space out your credit applications.
To avoid damaging your credit score by applying for too much at once, space out your applications.
Only apply for credit when you need it and when you’re confident that you’ll be approved.
Habit 5: Defaulting on Loans or Declaring Bankruptcy
The fifth habit that can wreak havoc is defaulting on loans or declaring bankruptcy which can have a significant negative impact on your credit score, and the effects can last for years.
It’s essential to make payments on time and avoid taking on more debt than you can handle.
Solution: Seek help from a financial advisor or credit counselor.
If you’re struggling with debt and considering bankruptcy or defaulting on loans, seek help from a financial advisor or credit counselor.
They can help you come up with a plan to pay off your debt and avoid damaging your credit.
Your credit score is an essential aspect of your financial stability, and it’s important to take steps to maintain and improve it.
By avoiding these five habits and implementing the solutions provided, you can ensure that you have a healthy credit score and financial future.
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Remember to pay your bills on time, keep your credit card balances low, keep old accounts open, space out your credit applications, and seek help if you’re struggling with debt. With a little effort, you can avoid catastrophe and have a financially stable future.
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