Building a solid credit reputation takes time and financial sense. Keeping good credit standing takes diligence. Ruining your credit is the easier to do and can happen instantly after making certain financial mistakes. It can take years for your credit to improve. Here’s your guide on how to quickly destroy your credit.
1- Make Late Payments
The quickest way to destroy your credit is to make a late payment. Late payments are reported to the credit bureau when the payment is made more than 30 days after it is due. If you make a simple mistake and pay your bill 5 days late it will not affect your credit score. A late payment stays on your credit report for 7 years and 180 days. Lenders can see how many late payments you’ve made and how recently you’ve made them. One late payment can immediately drop your score by over 100 points.
2- Apply For a Credit Card at Every Store in the Mall
One Saturday afternoon of shopping in the mall can hurt your credit report. Every store you walk into will offer you a “great” deal to receive a percentage off your purchase if you apply for their store credit card. Don’t fall for the marketing ploy. While it isn’t bad to have a few store credit cards, you shouldn’t open one for every store. Applying for several cards at once will put several credit inquiries on your report which will drop your score, and it looks bad to lenders.
3- Forget To Pay Your $20 Copay at the Dentist
If you forget to make a small payment to your doctor, dentist, or really any bill, it may end up in a collection account. Collections on your credit report make your credit score take a plunge. Don’t let small bills get lost in the piles of mail. Pay everything and on time, even a $20 outstanding bill that was a slip of the mind can cost you over one hundred points on your credit report.
4- Max Out Your Credit Cards
One of the factors attributing to your credit score is your credit utilization ratio. If all of your credit cards are maxed out it will hurt your credit report. It is suggested to keep revolving tradelines below 50% of the available balance.
5- Have a High Amount of Revolving Debt
Revolving debt comes from a line of credit that is not secured by collateral. The most common type of revolving debt are credit cards. A large amount of revolving debt is an indicator of overspending and cash flow problems. High revolving debt balances will drive your score down.
6- Only Keeping One Type of Credit Tradeline
The FICO credit report agency analyzes the diversification of creditors on your report. If you only have one type of debt, such as only car loans, only credit cards, or just a mortgage, this will drive your score down. Credit diversification does not impact your score as much as other factors do, but it is still something to consider while trying to establish a strong credit rating.
7- Close a Bunch of Credit Cards at Once
Many people pay off their credit cards and close them in an effort to remove the temptation of charging them up again. While their theory is to protect themselves financially, they are actually sabotaging their credit report. Closing all of those cards at once make a big impact on your credit utilization ratio. You are eliminating all of the availability on those cards and making the overall available tradelines significantly lower. This will make your score drop.
8- Falling Behind on Taxes
Taxes may seem like they aren’t related to your credit report at all, but they can end up making a difference. Taxes will not have any effect on your credit report if you pay them on time every year. However, if you fall behind on your taxes you can have liens placed on your property or wages. All liens and judgements are reported to the credit bureaus and have a significant negative impact on your credit score.
9- Mortgage Loan Delinquencies
We’ve come a long way from the great recession and the housing collapse of 2008. However, many homeowners are still defaulting on their mortgages. Any type of mortgage loan delinquencies quickly demolish the credit reputation you had built. If you are going through a short sale or a loan modification, you will have multiple months of delinquencies piling up. Each month a late payment is reported your credit score will drop lower. Additionally, a foreclosure will severely hurt your credit image and will remain on your credit report for seven years.
10- Co-Sign on Someone Else’s Loan
Cosigning on a loan does not seem like a big deal at the time you do it, but it can have some large ramifications. You co-sign because you trust the person who is trying to get the loan. You know that they have a good job, and they seem to have things together. Looks can be deceiving and you really can’t understand someone’s financial health based on appearances. The worst part about co-signing is that when the original borrower on the loan doesn’t tell you when they are struggling to make their payments. A few months of late payments can pass before the lender contacts you looking for money. At that point you already have delimquincies reporting to your credit making your score plummet.
Keeping a healthy credit score does not have to be a challenge. Avoid the situations above and you will have a strong credit rating and have access to all of the loan products you need.