We talk a lot about how to get and maintain good credit. The thing we don’t talk about, though, is how easy it is to destroy a good credit file. No matter how high your score, you’re always a few mistakes away from having to rebuild. This can be dangerous if you aren’t keeping track, and can make it so you don’t have the score when you truly need it. When you destroy a good credit file, years of hard work are sent down the drain. So, instead of focusing on what to do, for this one, we will be teaching you what not to do.
This one is the most obvious, but also the most devastating. If you want good credit, you cannot pay late or miss payments. Derogatory marks on your credit from slow pays or lack of payment have an absolutely devastating effect on your score. Not only that, but if you do it more than once, it takes forever to get your score back. This is due to how stringently reporting bureaus treat payment history.
Using Too Much Credit
Utilization is another issue many people run into, as they don’t realize that you can lose points just for using the credit that you have. Being at a higher percentage utilization on your accounts, even if you pay on time, can bring your score down quite a bit. the goal is to use 1-10% of your available credit, but you can usually get away with up to 30% without too much trouble. Just make sure you pay it all down a month or two before you plan on getting new financing.
Too Many Hard Inquiries
Once people realize the effect utilization has on their credit, they often seek new credit to make sure they don’t overload what they have. This can lead to trouble if you just go out an apply for every credit card you see. Having more than 3 inquiries in a short period of time can make reporting agencies think you are about to take out a lot of debt, and it will reduce your credit score. In addition, things are made worse when you get denied on those inquiries. So, do your research before applying so you don’t have to shop around as much. Don’t destroy a good credit file in an effort to fix it.
Low Credit Age
A lesser-known aspect of your credit score is your average credit age. this is found by taking the age of each of your open accounts and averaging it out. It is important to stress the “open” part, because many people ruin this without knowing it by closing unused accounts. By closing old accounts, you lose that account’s age in your calculation. This can lead to your score dropping a bit. Additionally, you’ll want to avoid opening a new credit card, financing a new car, or opening any other type of account before looking into getting a mortgage. These new accounts will bring that average age down very quickly, and you don’t want to risk damaging your interest on something as big as a home purchase.
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