The 5 Ways You're Ruining Your Credit Rating

It's tough to keep a good credit rating, and even the best of us can accidentally damage our score. There are a myriad of credit risks everywhere, from credit cards, home equity and auto loans, to a dubious health insurance system, and it's easy to make a mistake somewhere along the line. These are the top 5 mistakes, from easiest to hardest, that you might be making to damage your credit score:

1. Closing your account:

Closing a credit card account lowers the amount of credit you have available, obviously. What's not as obvious is the effect this has on your credit rating, which can plummet as much as 100 points in only 2 months as a result of closing a credit account. Why? Because one of the most important factors in calculating credit score is your "percentage of credit available", and decreasing your available credit drops this score. Try to keep as much available credit as possible by using your card at least once a year on a small purchase to keep your account active. And remember, unless your card has an annual fee, do NOT cancel it!

2. Maxing out your credit cards:

Banks like to see credit cards with high limits and minimal balances. These "open" cards are a sign of a financially responsible borrower they're likely to get their money back from. A maxed-out card, on the other hand, creates doubt about whether the card holder can afford their purchases, and leads to lowered credit scores. Applying for new credit cards and requesting higher limits on existing cards can help to fix this problem.

3. Medical Debt Collections

We've all had this happen: your doctor's office sends you the bill for something your health insurance is supposed to cover. Next thing you know, wires get crossed, the insurance company doesn't pay the bill, and the doctor's office turns the debt over to collection. Believe it or not, this happens all the time. To make sure it doesn't happen to you, pay attention to every bill you get and follow-up with both your insurer and your doctor to make sure the bill is paid. It's a little extra work on your part, but it's well worth it -- one single medical collection can drop your score 50 points.

4. Co-signing Gone Wrong

Co-signing a loan for a friend or family member is sure to win you brownie points with them - but those points might be coming straight from your credit score! You are responsible for any loan you co-sign on, and if the bills aren't paid or your co-signer files for bankruptcy, your credit rating will decrease. Even if you can prove it's not your fault, or you haven't filed for bankruptcy yourself, your credit will still be affected. Be wary - don't co-sign for anyone unless you can afford to pay it off yourself.

5. Overdue Payments

"Hey, my bills are getting paid. What's the harm if they're a little bit late?" Turns out, paying late can ruin an otherwise perfect credit score. Make sure your bills are paid on time by inquiring about and enrolling in your bank's automatic bill payment program. Your bank will automatically send your creditors a payment from your account every month, so you don't risk forgetting due dates, which can damage your credit rating and cost you hefty late fees.

Article by: JasonLancaster | Total views: 48 | Word Count: 551

About the Author

Author Jason Lancaster, an auto industry veteran, developed AccurateAutoAdvice.com. You'll find accurate car buying tips and auto advice.