Understanding how your credit score is calculated can be as confusing as navigating your way through the Amazon rainforest at night…blindfolded. What we can learn to understand is how certain actions can negatively impact our credit. In an effort to consider ourselves credit-worthy, we looked to MSN Money to compile a list of 7 of the worst things you could do for your credit.
1. Opening Too Many Store Credit Cards: This can be a tempting habit to fall into when every time you enter a retail store they offer you a lofty discount, rewards program, or delayed payment opportunity. But before you head out on a girls shopping trip or holiday shopping excursion, think twice before handing over your information to open up a new store account at every stop you shop. Consider the fact that applying for a large number of credit cards in the same time period can harm your credit score significantly. If you are disciplined enough to pay off store cards in a reasonable period, apply for them in a staggered period of time, rather than all at once.
2. Closing Existing Credit Cards: Often one of the most surprising things that can damage your credit is closing credit cards. You may be proud that you have paid a card off in full, but before cutting that card up, know that leaving the account open may be your best move. Having available credit increases your credit score. Keeping the account open, but not using the available credit is your best bet to keep your score on the rise.
3. Forgetting About A Bank Account With a Tiny Balance: It would be easy to assume that a bank account open with a small balance would result in no harm. However, over a period of time, fees may begin to add up turning that small balance into a negative one. Banks may turn this negative balance over to a collection agency which will then lower your credit score.
4. Paying a Business Credit Card Late: You may have opened a small business and thought that being late on your credit card associated with your business won’t impact your personal credit. Don’t be so sure. Often business account delinquencies are reported to an individual’s personal credit report.
5. Blowing off Fines: From parking tickets to late library fines, it’s easy to assume these fees are nothing to stress over. In this day of business financial strife, more and more businesses and agencies are turning over any unpaid balances to collection agencies which can significantly impact your credit score.
6. Not Paying Your Income Taxes On Time: Don’t mess with the IRS. Being late on paying your taxes is nothing to take in stride. While you may never physically see anyone from the IRS come knocking on your door, the IRS can easily place liens on your property and cause significant decreases in your credit score ratings. If you owe a large amount, consider working out a payment with the IRS rather than putting off payment all together.
7. Losing Track of Final Household Bills: If you move or simply change cable or phone providers, make sure you finalize payment on any and all remaining balances with the former service providers. If your power, gas, or electric company goes unpaid for 120 days to six months, it will likely be reported to a collection agency which will lower your credit score.
The bottom line, being credit savvy can mean big savings in the long run. With a higher credit score you can enjoy the benefits of low interest rates and options when it comes to approval of loans. Embrace that knowledge is power and learn what positively and negatively impacts your credit rating. Also, take advantage of obtaining your free credit report that you are entitled to once a year at annualcreditreport.com.