Your credit scores can exert a tremendous amount of influence over your financial wellbeing, in some instances even more than your income. Don’t believe me? Just ask anyone with a great job who has ever been turned down for a mortgage application due to bad credit. People with great incomes and bad credit get denied for financing every single day.
You probably already know that achieving good credit is important. You are smart enough to be reading this article after all. Yet what you may not realize is that when it comes to earning good credit sometimes knowing what not to do is just as important as knowing what you should be doing. Check out these 4 ways you could be destroying your credit scores without even knowing it.
1. Ignoring Your Credit
Your credit is your responsibility. No one else can make sure that your payments are made on time and that you follow other smart credit management practices. Yet in addition to managing your credit properly it is also essential to monitor your credit properly as well.
Credit mistakes happen all the time. The Federal Trade Commission estimated that there are over 40 million mistakes present on the credit reports of US consumers. Other studies believe the number of credit report errors is even higher. While the Fair Credit Reporting Act certainly gives you the right to expect accurate credit reports, the truth is that it is actually your personal responsibility to make sure your credit reports remain error-free. You should check and review your credit reports often, either on your own or with the help of a professional, and remember that you or your credit pro have the right to dispute any credit reporting mistakes or questionable information you discover. Ignoring your credit is asking for problems.
2. Making Excuses for Late Payments
Late payments have the ability to send your credit scores spiraling downward very quickly. Many consumers will try to make excuses for occasional late payments, but developing this habit can have some very unpleasant consequences. Over 1/3 of your credit scores are based largely upon your payment history, especially whether or not you consistently pay your current bills on time. Of course making timely payments alone is not enough to earn you the amazing credit scores you crave, but doing so is definitely a great start.
3. Justifying Credit Card Debt
It is easy to justify overspending and charging more on your credit card accounts than you can afford to pay off in a single month. “I work hard, so I deserve these concert tickets/new shoes/vacations/etc. I’ll charge it now and pay it off later.” Yet racking up a pile of unpaid credit card debt is not just bad for you financially, it is bad for your credit as well.
The truth is that even if you make every single monthly payment on time, the mere fact that you are charging more than you can afford to pay off each month could negatively impact your credit scores. FICO bases 30% of your credit scores largely (though not entirely) upon the amount of credit card debt you carry and how those credit card balances relate to your credit card limits. As your balance to limit ratio climbs upwards your credit scores will begin to slide downwards. If you want to achieve great credit scores then you need to make paying down your credit card balances a priority.
4. Not Paying Out of Principle
“I disagree with that bill, so I am just not going to pay it.” Unfortunately refusing to pay a bill such as a mobile phone statement, medical bill, credit card bill, etc. can be a recipe for credit score disaster. Of course it is no fun to pay a company when you feel like you have been cheated. However, refusing to pay out of principle can potentially create a credit score nightmare, a nightmare which might just cost you far more in the long run than the amount of the originally disputed bill.[/vc_column_text][/vc_column][/vc_row]