Most people want to learn how to build their credit rating. Conversely, it also pays to learn how to destroy your credit score, if only to avoid doing so.
A high credit score is what everyone would want to have. You are granted loans easily and credit card companies are only too eager to have you for a client. Cars and a house – what American doesn’t aspire to have them? Auto financing and mortgages at lower interest rates won’t be a problem if your FICO score is high.
But did you know that, while building a credit score can take years, it takes only a few months to destroy it? Here are a few selected actions that can damage your financial name real fast and tear to shreds what you so painstakingly built over time.
DELAY YOUR PAYMENTS OR IGNORE THEM OUTRIGHT
Your payment history comprises 35 percent of your total credit score, so delaying or failing to make payments altogether is the quickest and most effective way to bring it down. Only one incident of not paying the minimum amount of a loan or credit card debt within 30 days of the due date can lower your credit score by 100 points. You can always get back that 100 points, or so you rationalize. True, but getting it back takes longer than letting it go in the first place.
USE YOUR CREDIT CARDS TO THE LIMIT
Credit cards set a maximum limit for the cardholder to spend. While charging everything to your credit card is so tempting, consider how it can affect your credit score. The amounts of money you owe, wherever it is coming from (credit cards, loans, etc.), make up 30 percent of your credit score. Thus, every dollar you charge to your credit card is seen as money owed by you. This increases your credit utilization ratio. A rise in your credit utilization is inversely proportional to your credit score and the bank or card company views you as a spendthrift. They may not grant you a loan and if they do, it will have a higher interest rate than someone with a better credit score.
Advice from authorities in credit card usage says you should keep the balance on your account at 35 percent of your credit limit or lower if you are aiming for a high credit score. This shows your maturity in debt control and you are perceived as a low-risk credit person.
CLOSE OUT YOUR OLD CREDIT CARDS
Get a new card, transfer the balance of your old cards to the new, and then close out those cards that you’ve had for years. Sounds like good business sense, doesn’t it? Banks don’t quite see it that way. Since 15 percent of your score is based on length of credit history or how long certain credit lines have been open, that old card you’ve been using is proof that you are a member of good standing in that card company. If you must close out credit cards because you have too many, choose the newer ones to preserve your credit.
Destroying your credit score is not a good option in the long run. Give it a lot of thought before you do it. You may live to regret it in the future.