Re-building credit is a popular pastime these days, necessitated by those who have often inadvertently found ways to ruin their credit. It is surprisingly easy to sabotage ones own credit yet far more difficult to correct it. Whilst it is inevitable that those who get into debt which they cannot repay will ruin their credit, people who handle their money well can also ruin their credit by far less obvious means. Here are some of the top ways to ruin your credit which don’t actually involve you being in debt.
Become a co-signer: You have to have good credit to stand as a guarantor for someone else’s loan. Often those with good credit are approached by relatives, friends or others who are desperate to borrow money, yet don’t have either a credit history of their own, or indeed have bad credit. People like to help out others when the banks refuse, without considering that banks have their reasons for not approving the third party.
Unfortunately the rate of default amongst those who persuade a co-signer to attach their name to a loan runs at about 80%, and their missed payments will affect the credit of their guarantor. Not only will the guarantor end up being responsible for the debt payments, their credit will be affected too as they are not immediately notified of problems.
Become a rate tart: It makes excellent financial sense to switch between zero interest balance transfer credit cards whilst the initial offer applies, and then switch to another one on expiration of the offer. However wise moves like this will affect your credit score as the credit card issuers really don’t like this sort of behaviour as you never end up paying them any interest. Switching cards often will have a negative effect on your credit.
Apply for lots of credit: Maybe you’ve just moved home and are tempted to take rewards cards at various stores for home improvement goods, furniture and shiny new kitchens. It makes sense to apply for these cards, take advantage of the discount from each store, and then repay them. Even if you never miss a payment that it totally irrelevant as applying for lots of credit in a short period of time is suspect and can be deemed irresponsible, and will help to ruin your credit.
Use too much of your credit: If you have available credit of perhaps $2000 and use more than $600 of it in a given month this will send warning bells to your creditors, even if you repay it in full each month. Total up all your available credit and stay under the 30% guidelines in order not to ruin your credit. Staying with the $2000 figure, if you want to use more than $600 a month in credit, ask for credit limit increases to avoid inadvertently reducing your credit score.
Close your old credit cards: When you decide you have too many credit cards for your comfort zone and you haven’t used that old one for several years, don’t cut it up. Your oldest credit cards represent the length of your credit history, and the longer it is the better it is for your credit. By all means if there are fees attached to the card then give it the chop, but if it is fee free shake the cobwebs off it and use it from time to time. Close a newer one if you feel you have too many cards as this will only have a temporary blip on your credit and won’t ruin it.
Ignore the library fine: Many people are on top of their loans and credit cards, but simply neglecting seemingly inconsequential things such as a library fine or a parking ticket, can bring your credit score down, as these things will eventually work their way onto your credit report. Imagine your mortgage interest rate going up simply because you overlooked something which wasn’t on a monthly automated payment plan.
As you can see there are ways to ruin your credit even when you never make late payments, miss payments or declare yourself bankrupt. Paying attention to these details will ensure that you don’t need to spend time re-establishing good credit and can remain confident that you have not done something detrimental to sabotage your credit. It pays to be up to date on the Fico requirements of good credit management, rather than simply assume that as a good payer you are doing everything right.