Things You Can Do

to Wreck Your Credit

Things You Can Do to Wreck Your Credit

Getting a good credit score is vital to your financial success. But a common misconception is that paying your bills on time is enough to create an excellent credit rating. Even if you never pay your bills late, there are still plenty of things you can do to wreck your credit standing. What follows are three common financial misconceptions and why believing them can seriously handicap many aspects of your future.

1. It doesn't hurt anybody to charge up your existing credit cards close to or over the granted credit limit. Some people do not realize just how much of a part their utilization of existing credit plays in their financial standing. If you have a $1,000 credit card and owe more than $500 on it, this will wreck your credit rating. The damage escalates the higher your debt gets in comparison to the credit limits lenders have extended to you. If a card gets over the limit, you have significantly damaged your credit score and risk being denied accounts or issued unfavorable interest rates. The good news is that your credit rating will bounce back once your payments reduce the account balances.

2. It is fine to apply for "instant credit" whenever you feel like it. Most department stores and even smaller retailers offer a discount on merchandise when customers apply for a new account or "instant credit." But every time you apply for a new account, the lender will take a look at your credit report. This review is posted on your credit file as an "inquiry." Too many inquiries can not only wreck your credit standing, but also cause some lenders to outright deny your account request. Credit scoring software deems too many applications as a potential sign of financial trouble. Inquiries remain on your report for 2 years; the damage to your rating is reduced after about 6 to 12 months.

3. You can miss payments to doctors, private schools, cable companies, or landlords. Some people mistakenly believe that they can get away with paying bills late if the money is not owed to a traditional bank or credit union. This misconception is a surefire way to wreck your credit standing. Virtually any person or business to whom you owe money can turn over your account to a collection agency. Then the agency can report the situation to your credit report, which will damage your credit score for 7 years.