Can’t figure out what’s ruining your credit?
Perhaps you were applying for a new auto loan or credit card, then you were denied because of your bad credit score.
You probably have sound spending habits, but for some reason, your credit rating continues to drop.
If this is you, then perhaps you want to pinpoint what does affect your credit.
As you’ll soon find out, you’re making money moves that hurt your score.
What Happens if You Misuse Credit?
Let’s first elaborate on how your credit score is calculated.
Most people are using the Fair Isaac Corporation (FICO) score whenever they apply for credit options. It is a scoring model ranging from 300 to 850, and your rating improves as the number increases. While there are alternative systems, they usually have similar score ranges.
Whenever they extend credit, institutions share your transaction info with the credit bureaus. In turn, they analyze that information to provide your corresponding FICO credit score. They mainly check your credit history and credit utilization.
People with punctual payments and few credit balances usually get the best terms for credit cards and loans. In contrast, banks give higher interest rates to people with bad credit scores.
That’s why you might not get the credit limit you want if you have poor credit. Moreover, ruining credit has repercussions beyond your plastic swiper.
You Pay More For Insurance Premiums
When you get insurance, your provider receives compensation through the premium you pay every month.
If you have poor credit, your plan might cost higher monthly dues. Although these companies check other factors when granting insurance plans.
Getting Approval For Apartments Is Harder
Most people don’t know that landlords also scrutinize credit scores before accepting new tenants.
Some of them may turn you down if you have a bad credit score. Others might still give you a place to stay, but they would probably charge more for rent.
Buying A New Car Becomes More Difficult
If you need an auto loan for a new vehicle, then you should avoid ruining credit.
Similar to a credit card company, your car dealer may decline your loan application outright. While others may still grant your loan, it may require higher monthly payments.
Your Startup Might Not Receive Funds
If you need money to launch your new business idea into reality, you should have good credit.
Banks would be apprehensive about approving your business loan if you have a bad credit score. Your application might be rejected, or you may receive a loan that’s insufficient for your startup.
Landing A Job Becomes Even More Difficult
Ruining credit could mean ruining your career prospects.
When you’re applying for work, your potential employer will check your credit history before hiring you. They focus on that rather than just the rating because it helps gauge your future work performance.
How You Could Be Hurting Your Credit
People perform seemingly innocuous actions that are ruining credit ratings. More importantly, you should be careful when dealing with loans and credit cards.
Debt Consolidation
Some people borrow a lump sum that pays all their credit cards in one swoop. This is called debt consolidation, and it is available as personal loans or balance transfer cards. Afterward, it requires monthly payments for the total, with a lower interest rate.
If you have multiple credit card balances, it could facilitate debt payoff. However, your bank would have to perform a hard credit inquire that temporarily reduce your credit rating.
Once you’ve repaid enough, you may soon restore your credit.
Closing Old Accounts
One of the largest credit score factors is credit utilization, and your balance total is divided by your credit limit total. Closing credit accounts reduces the limit total, increasing your utilization. If it exceeds around 30%, it could soon contribute to ruining credit scores.
Be careful in closing credit accounts, so you can avoid getting a bad credit score.
Hard Inquiries
As we’ve mentioned, some credit institutions require hard credit checks for certain services. This is why you should only apply for important reasons.
You could request pre-approval first since it’s not connected to a specific credit application. It’s considered a soft inquiry since it doesn’t affect your credit.
Checking your credit report is also a soft inquiry, so feel free to get your copy.
Overlooking the Little Things
Did you know that factors ruining credit scores include unreturned library books?
Nowadays, more organizations are working with collection agencies to collect even minute fines. You could now get a bad credit score because of something as mundane as unpaid parking tickets.
Typically, you could improve your credit score by becoming an authorized user for someone else’s credit card. Unfortunately, it could tarnish your rating if the primary owner handles their account poorly.
Also, you may have been careless in handling your credit card info. Consequently, someone unscrupulous could steal those details and commit identity theft. Someone else could wreak havoc on your credit before you could even close the account.
Remain vigilant with your spending habits so that you can protect your credit.
Shopping for Loans
Another habit that is ruining credit scores is the tendency to browse loans.
They are lured by the promise of amazing offers from the central banks and credit unions. Then, they check each one, repeatedly performing hard inquiries for every enticing promo. Eventually, their poor decisions catch up to them as bad credit scores.
Worse, some are attracted to shady credit options such as payday lenders. Please be wary of these creditors, as their gargantuan interest rates could bury you in debt quickly. Know your state and federal laws, and check advertising disclosure as much as possible.
Final Thoughts
Careful financial management is the best way to avoid ruining credit scores.
You should only borrow funds when necessary. You should also be aware of the seemingly trivial stuff that could inflict significant blows to your rating.
If you have a bad credit score, some alternatives could help you improve it.
For example, you could submit diligent payments on a secured credit card to eventually boost your score.
For more credit card debt management tips, you may click here.
Learn More About Managing Credit
How do I fix my ruined credit?
Start by paying your debts on time and reducing the amount you owe on credit cards. These will eventually improve your credit history and utilization, two of the most substantial credit rating factors.
Does bad credit ruin peoples’ lives?
A bad credit score could prove disastrous to peoples’ lives. By ruining credit scores, people lose access to essential services and lead to more financial problems.
Does pulling my credit report hurt my score?
If you check your credit report, then you won’t harm your score. On the other hand, applying for loans and credit cards are considered hard inquiries so that they could lower your rating.
Can someone else ruin your credit?
Aside from yourself, someone else with your credit card info could crash your credit. They could rack up debts in your name that could swiftly lower your score.
What hurts your credit score the most?
Credit history and credit utilization have the most significant impact on your credit score. Credit history accounts for 35% of FICO scores, while utilization factors for 30%.
