7 Mistakes that Can Ruin Your Credit

A good credit score is key to getting the best interest rates, financing a home, buying a car, and sometimes even getting a job. Building a good credit rating can sometimes take years of hard work but destroying good credit can happen almost overnight. If you're working to build a good credit score, there are certain things you need to avoid to prevent ruining your credit score.

Maxing out your credit cards.

Approximately thirty percent of your FICO score is based on how much you owe vs. how much available credit you actually have. The closer your balances are to your actual limits, the worse it will look on your credit. Try to keep your credit utilization under 30% to help boost your score.

Paying just the minimums.

By only paying the minimums on your credit card balances, you ensure that you will never get out of debt, especially if you have high interest rates. Just paying the minimums makes it impossible to make a serious dent in your balance and you will continue to carry a high ratio of debt to available credit which impact your score.

Paying late or missing payments.

The largest percentage of your FICO score, 35%, is based on whether or not you pay your bills on time. Just one late or missed payment can cause your credit score to drop as much as 100 points. By creating a budget, you can learn to live within your means and pay your bills on time.

Applying for more credit.

Every time you apply for a new credit card or line of credit, it goes on your credit report. The more credit you apply for, the more desperate you look to lenders. Keep your inquiries for new credit to a minimum to have the least impact on your credit.

Closing down old accounts.

Account history and the age of your accounts is also key in determining your FICO score. If you're working to pay your credit cards off, don't be tempted to close them down right away, especially if you've had the account for several years.

Taking out payday loans.

Payday loans are a vicious debt cycle that will only entrap you and make it impossible to get out of. With their often exorbitant interest rates, it's very easy to fall behind and have negative information on your credit report.

Cosigning for someone.

Cosigning for a friend or relative seems harmless enough but it can often destroy credit as well as relationships. If someone asks you to cosign for them, it's a sign that they are not financially responsible and if they default on the debt, then you're on the hook for it.

By avoiding these mistakes, you are not only protecting your credit but learning financial responsibility. Even one small misstep can have a huge impact on your credit score, and create all sorts of problems for you later on. Taking the time to educate yourself about how to use credit properly can help you to avoid a financial nightmare.