Don’t Let These Mistakes Ruin Your Credit Score

by Miranda Marquit · 2 comments

When it comes to your finances, your credit score can be a big deal.

A good credit score can mean big savings (or costs) if you take out a loan. Good credit can also mean lower costs when you get car insurance in some states.

If you have good credit, you’ve worked hard to manage your finances and your loans in a way that shows you are responsible. You are proving that you are a solid risk.

But what happens if you slip up? How much could that ruin your score?

According to Equifax, the damage affects different people differently. One late payment will affect a person with a lower score, but it’ll have a much bigger impact on someone with a really high score.

That’s right: if you have great credit now, a mistake could mean a bigger hit to your credit score. Someone with mediocre credit won’t see the same impact as the result of a mistake.

Do you have an excellent credit history and want to keep it that way? Here are some things to avoid if you want to keep that credit score in the good to excellent range:

Missed Payments

The biggest factor in your credit score is your payment history. One missed payment can tank your credit score, if you have excellent credit, by as much as 100 points, according to Equifax.

The longer you wait to pay your bill, the worse the impact. If you are just a couple days late, you might not see a huge change. However, once you reach that 30-day late mark, it’s a problem.

Do your best to plan your finances so you make your payments on time and in full. Easier said than done, I know, but it’s much easier if you have a budget so get one started.

High Credit Utilization

If you have excellent credit, there’s a good chance you carry small balances on your cards — if you carry them at all. Best results come when you use 30% or less of your available credit each month.

But when you start charging, and that credit utilization number starts to climb, you can see changes to your credit score without realizing it. The closer you are to your limit on the credit cards, the more it impacts your score.

If you end up over the limit on your cards, then the score will suffer. Try to continue keeping carried balances low. Better yet, pay off your cards each month and avoid paying the interest.

Cosigning on a Loan

One day you may want to help your child or sibling by cosigning on a loan. It seems like a good idea to cosign on a loan to give them a boost, but think twice before you commit.

Your credit is on the line as soon as you sign on the dotted line because you accepted responsibility for all payments as a cosigner. Plus, it will look like you have that debt — even if you don’t, and that can affect how much you can borrow if you were to, say, apply for a mortgage on a dream home. If the borrower misses a payment, that’s on you as well. You can see your credit score fall.

And if you do cosign, make sure the borrower keeps you up to speed. It may be crappy to make their loan payments, but at least it can save your credit if you do.

David’s Note: In many situations where the original benefactor of the loan starts missing payments, the cosigners will help pay the loan off to avoid taking damage to their score and possibly getting shamed and harassed by the collection agencies. It’s fine when everyone makes their payments of course, but if you cosign and then have to pay off the loan at the end, you are basically out many thousands of dollars without getting any benefits of the original loan. Plus, your relationship with the person you were trying to help have likely soured because of all those confrontations you would have had with the person about the missed payments. Is it worth the risk? Sometimes, it’s yes. Most of the time though, it’s no. I rather be cautious here, but only you can decide whether it’s worth it.

Do your best to plan your finances so you remain on top of the situation and avoid credit pitfalls.

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  • Cory @ Growing Dollars From says:

    I believe a lot of people get a bad credit score because they miss payments.

    This would likely be credit card payments most of the time. People should always keep track of their spending to know how much money they generate and how much they spend each day.

    By doing this, they would be better able to manage their payments and obtain a better credit score.

  • Cassie says:

    This is good advice. I’ve recently paid down on some credit card debt, my utilization was over 30%, got it way under now and just waiting to see how long before there’s a change in my score. My plan is to keep pay off the cards each month from here on.

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