Don’t Wake the Beast: It Could Hurt!

I am always having discussions with people about ways to improve their credit file. It’s a topic discussed endlessly in my circles.  It is always a fun conversation!  No one seems really knows the answer.

Let’s look at how you CAN damage your credit file. Avoid these mistakes and you can be sure your file will benefit.  I think we all know the obvious– don’t declare bankruptcy or have a foreclosure (if you can help it) and don’t ignore a payments for more than 29 days.

Here are some less evident ways you can destroy your credit score.  Some of them you may already know. But you may not know how hurtful they can be:

Ignore your credit card balances. It’s never a good idea to exceed the limit on your credit card, but sometimes it can be hard to avoid, even if you diligently monitor your balance. If you’re teetering near your credit limit, paying it down before the payment is due will keep your score in check. Something else you may not know is that it’s best for your credit score if you maintain your card balance at 10 percent to 30 percent of your limit. You can lose up to 45 points by maxing out your revolving accounts.

Pay your bills late.

Less than 30 days

If you’ve only missed your due date by a few days, you’re still less than 30 days late. Your credit card issuer or creditor typically charges a late fee (which may not show up until your next bill), but at this point, nothing goes on your credit report. Send your payment before your next due date and the credit bureaus will have no clue you were late.

30-89 days late

Once you’re 30 days late, however, the credit card issuer or creditor will typically update your credit report to show that your payment was late. If you catch up on your payments, your account status will go back to current, but the late payment still remains. On the other hand, if you miss your payment again, making you 60 days late, your credit card issuer or creditor can charge the maximum late fee. After that, your interest rate can  increase to the default rate.  Also, you could lose up to 120 points by misso payments.

Use the same card all of the time. It’s simpler to pay for everything with the same credit card. It’s also a good way to compile enough rewards points to get something better than a logoed coffee cup. But your credit score will trend higher if you mix up your payment methods (credit, debit, etc.). This is also a reason not to close down old credit card accounts. It’s better for your score if you keep them active.

Apply everywhere. About 10 percent of your credit score depends on the number of credit applications you’ve made recently. So don’t use the shotgun approach. Apply only when you truly need credit.

Lose your edge. The bigger they are, the harder they fall. It’s true of people in funny viral videos, and it’s true of your credit score, too. Which means that the more you work to get your score up in the high 700s, the more you have to work to keep it there. Because the higher your score, the more points you’ll lose due to a negative event. Why? Credit-scoring formulas are very sensitive to any sign that you’re getting in over your head.