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The 5 Mistakes You're Making that Ruin Your Credit Rating

by: JasonLancaster
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Word Count: 586

These days, keeping a good credit rating requires navigating a dangerous maze of credit cards, home equity loans, auto loans, and an uncertain health insurance system. Here's a list of the top dangers to your credit score, from easiest to hardest:

1. Credit card closure:

Closing your credit card as soon as it's paid off is the easiest way you're probably ruining your credit. A closed account decreases your "percentage of credit available", one of the most important factors in calculating credit score. Taking away from this percentage by closing an account can drop your credit score by as much as 100 points in just 2 months. Keep your credit rating high by keeping as much available credit as possible, and never cancel a card unless it has an annual fee. And make sure you use your card at least once a year to make an affordable purchase - this keeps your account active and contributing to your available credit.

2. Maxed out spending

Spending all the credit you`ve got is a danger sign to banks, who are looking for reassurance they'll get back the money they've lent out. A credit card with a high limit but low to no balance indicates a responsible consumer who is likely to repay debts. Maxing out your credit cards creates the impression you're spending more than you can afford to pay back, and drops your credit rating. The best remedy for this is to apply for more credit cards and request a higher limit for existing credit cards. Just take care not to spend this extra credit, or your rating will get worse!

3. Medical Collections:

Health insurance is not exactly known for its reliability - it's not uncommon for patients to receive a bill for something they think their health insurance covers, then discover their insurance company won't pay it. By then, the doctor's office has turned the debt over to collection, and your credit score has taken the damage. Protect yourself against this by checking every bill with both your doctor and insurance company to make sure it's paid. That extra bit of time you put in could save your credit score 50 points.

4. Co-signing Gone Wrong

You've probably had family or friends ask you to co-sign a loan for them, and it might sound like a great idea. After all, why not help out someone you care about? But co-signing a loan is dangerous territory, credit-wise. You assume equal responsibility for the debt, and if the other person doesn't pay up, you're expected to. And if your co-signer files for bankruptcy, that'll show up on your credit report, even if you don't file anything yourself. Even if you can prove that the unpaid bills are your co-signer's fault, your credit rating will still suffer. Don't co-sign for anything, no matter how close the friend, unless you can afford to pay it yourself.

5. Paying Bills Late

It's amazing to me, but a lot of people have a hard time remembering to pay their bills. In fact, I've seen credit bureaus of people that SHOULD have perfect credit but don't, simply because they can't remember to pay their bills before they're due. If you're one of these people, you should take immediate action. Visit your current bank, ask them about their "automatic bill paying" program, and enroll ASAP. Once you're enrolled, the bank will send out a check to your creditor automatically each month so you never have to remember. Besides helping your credit, it can save you hundreds of dollars of late fees each year.