5 Ways to Kill Your Credit Score

Taking a wrecking ball to your credit rating is probably best likened to striking a match and burning all of the cash in your wallet. The concept is simple: a bad credit rating means higher interest rates and ultimately less savings for you. Your credit score, or your FICO score, ranges from

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  1. #1
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    Default 5 Ways to Kill Your Credit Score

    Taking a wrecking ball to your credit rating is probably best likened to striking a match and burning all of the cash in your wallet.

    The concept is simple: a bad credit rating means higher interest rates and ultimately less savings for you.

    Your credit score, or your FICO score, ranges from the worst possible score of a 300 to a perfect 850, and is determined by such factors as paying your bills on-time, the amount of money you owe as well as the length of your credit history, according to the company Fair Isaac, which runs the scoring system.

    But even if you are one of those individuals who is diligent about maintaining your good credit standing, it is still possible that with a few simple missteps you could send your credit score into a tailspin faster than you can say delinquency.

    So while closing out those credit card accounts you don't use or rolling over all your outstanding debt to one card may seem like sensible moves, you might actually be killing your credit rating.

    Late payments

    The easiest way to lower your credit score is through delinquent payments or by skipping out on a bill altogether.

    Since your payment history makes up 35 percent of your credit score, failing to make the minimum payment within 30 days of the due date could send your score plummeting, says Craig Watts, a spokesperson for Fair Isaac.

    Say for example you've never missed a payment and have a credit score in the high 700s or low 800s. If you were to miss the 30-day grace period, your score could drop by 100 points or more.

    "That first delinquency puts you in a different class of consumers," says Watts. "You can make up that 100 points but it will take a lot longer than it took for that score to fall."

    High card balances, low FICO score

    Maxing out your credit cards or pushing your account to its limit is another surefire way to bring down that FICO score, says Watts.

    Experts say that consumers should aim to keep the balance on their credit card accounts no higher than 35 percent of their credit line. That means if you have $1000 credit limit on your card, try to keep the balance no higher than $350.

    "The lower your debt compared to your credit limit, statistics show you are a better credit risk and that you have more self-control," says Watts.

    That also means you might want to reconsider consolidating all of your credit card debt onto one account, especially if that means the new balance is close to your credit limit.

    Closing credit cards

    Ok, ok, we know what you're thinking: 'I've got an unhealthy number of credit cards in my wallet, I think I'll start closing those out to help my credit score.' Not so fast, warns Steven Katz, a spokesperson for TransUnion, one of the country's three major credit reporting agencies.

    Since part of your score is based on the length of time certain lines of credit have been open, closing out that 10-year old credit card could take a bite out of your credit score.

    "It's negative because it's taking away a reference to a positive credit history," says Katz.

    And if you are trying to trim down your debt by hopping from one low-interest rate offer to the next, closing cards along the way, Katz warns that kind of behavior could send a message to future potential lenders that you might be a credit risk.

    Too many in-store cards

    It's always a temptation at the checkout line, but signing up for a Home Depot, Macy's or any in-store credit card just to get a 10 percent or 15 percent discount may work against your FICO score.

    Even if you vow to promptly pay them off, opening up several of these accounts in succession could spell trouble for your score because opening multiple lines of credit in short period of time is considered abnormal behavior by credit agencies, according to Fair Isaac, and it suggests that you might be more of a credit risk.

    Fines that add up

    A $30 library fine or a $75 parking ticket. Who cares, right? Well, that could be changing, says Watts.

    More often nowadays, municipal governments are turning outstanding fines over to collection agencies, who have the ability to trash your credit rating if you don't pay up. Watts says that if a collection agency reports you were not able to pay that overdue library fees or parking ticket, that could drop your credit rating by 100 points or more.

    "That will hammer your score," says Watts. "Make good on that bill because you don't know who is or who is not reporting to collection agencies."

    And while you may think you can't be bothered with those petty fines now, just imagine how much more they'll end up costing you if the collection agency mangles your credit score and you end up with a higher interest rate on that 30-year mortgage.

    Source: Cnn.com

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    Last edited by d_awalker; 02-08-2009 at 10:20 AM.

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  3. #2
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    Default Re: 5 Ways to Kill Your Credit Score

    very good information!!!!!
    Terra , Wife to Kevin, Mom to Cassidy (12) and Ciara (2)

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    Default Re: 5 Ways to Kill Your Credit Score

    I'm not sure how accurate it is though! We closed down all 28 credit cards in the same afternoon. 5 years afterward our credit rating was as high as you could ever get! Better to close them and get out of debt than hang on the the suckers! I hear one long term credit card is good but if you can't handle them than no credit card is good! I'm doing just fine with my debit card only. I would think that my checking account that I've had for 30 years would count much more than a credit card. Any way I got banks and lenders beating on my door wanting to loan me money and I've never, ever been sorry I turned off and cut up my credit cards! All those bankers/lenders are also finding my door very closed to them. I don't need my high FICA score because I will never ever get into debt again!

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    Default Re: 5 Ways to Kill Your Credit Score

    Quote Originally Posted by brchbell View Post
    I'm not sure how accurate it is though! We closed down all 28 credit cards in the same afternoon. 5 years afterward our credit rating was as high as you could ever get! Better to close them and get out of debt than hang on the the suckers!
    This information is very accurate. I have heard the information about closing down credit cards from various sources for a long time. When you close credit cards down immediately afterwards, your credit score is negatively impacted. Any time your available credit lines are reduced or eliminated, it hurts your credit score. After 5 years have passed and you do not have any negative marks on your credit, I am sure there would be no effect.

    After closing those credit cards, you did not need your credit rating immediately to buy a car, buy a house, or apply for a job, so it was no big deal. This advice is mainly aimed at people attempting to keep their credit score in good standing in the immediate future and into the future.

    I hear one long term credit card is good but if you can't handle them than no credit card is good! I'm doing just fine with my debit card only.
    Instead of closing the cards, you could cut them up and not use them anymore. That's what I do when I have paid off a card. It accomplishes the same task and the credit score would not be affected.

    I would think that my checking account that I've had for 30 years would count much more than a credit card. Any way I got banks and lenders beating on my door wanting to loan me money and I've never, ever been sorry I turned off and cut up my credit cards! All those bankers/lenders are also finding my door very closed to them. I don't need my high FICA score because I will never ever get into debt again!

    This is great, but it would have been a different story if you had closed down all of your cards and then applied for a loan. I understand what you are saying, but unfortunately, many of us wanting to be in your situation are not there yet. We still must play the "credit dance" due to jobs, needing to buy a house, needing to purchase a car, etc.

    Don't get me wrong. I cannot wait to tell them all to take a short jump off a long cliff. Until then, I will do everything I can to insure that our credit rating stays in good standing.
    April
    http://www.budget101.com/groups/homeschoolers.html
    Neither a borrower nor a lender be.
    I should have listened to Shakespeare!

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    Default Re: 5 Ways to Kill Your Credit Score

    Quote Originally Posted by d_awalker View Post

    This is great, but it would have been a different story if you had closed down all of your cards and then applied for a loan. I understand what you are saying, but unfortunately, many of us wanting to be in your situation are not there yet. We still must play the "credit dance" due to jobs, needing to buy a house, needing to purchase a car, etc.

    Don't get me wrong. I cannot wait to tell them all to take a short jump off a long cliff. Until then, I will do everything I can to insure that our credit rating stays in good standing.
    Actually During this time we did in fact get a car loan and bought our house for $243,000! We applied 3 places and were accepted at all three. Our terrible credit score was over ridden by our checking account and our good name. They saw the mess and they had enough time to see where we were going with it. They took a chance and we didn't let them down. We also got an awesome rate on our loan for the house(5 1/2% 5 years ago) which is what we really worried about but would of canceled the house if we needed to and stayed in the pole barn instead. But we did have options that many would not of had. We also prayed about the loans before we took them and only applied because the Spirit told us to do so. We only have the house left to deal with and it will be gone 2 to 5 years from now. I still wouldn't keep a credit card just to have a "better" credit score. But that is a very personal item to consider for each person! God bless you all as you go for being debt free!

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    Default Re: 5 Ways to Kill Your Credit Score

    Quote Originally Posted by brchbell View Post
    Actually During this time we did in fact get a car loan and bought our house for $243,000! We applied 3 places and were accepted at all three. Our terrible credit score was over ridden by our checking account and our good name.
    I am so glad that worked out for you. There is always an exception to a rule.

    They would laugh at our checking account! Money is there and more than enough to pay the bills, but not much else! Of course, if you have lots on money in the bank, they know you are a good credit risk.


    They saw the mess and they had enough time to see where we were going with it. They took a chance and we didn't let them down. We also got an awesome rate on our loan for the house(5 1/2% 5 years ago) which is what we really worried about but would of canceled the house if we needed to and stayed in the pole barn instead.
    That's amazing! I do understand about wanting to stay in the pole barn instead of being taken.

    But we did have options that many would not of had. We also prayed about the loans before we took them and only applied because the Spirit told us to do so. We only have the house left to deal with and it will be gone 2 to 5 years from now. I still wouldn't keep a credit card just to have a "better" credit score. But that is a very personal item to consider for each person! God bless you all as you go for being debt free!

    It's amazing that you will be done in 5 years or less with paying for the house. I am so happy for you! I wanna be like you when I grow up
    April
    http://www.budget101.com/groups/homeschoolers.html
    Neither a borrower nor a lender be.
    I should have listened to Shakespeare!

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    Red face Re: 5 Ways to Kill Your Credit Score

    Things like this is the reason we do not have credit cards LOL


    Anyway thought this may help here,

    7 times when it's OK to cancel a credit card

    You've had a good run, you and your credit card. It's been there for you during good times and bad, buying you dinners, gifts and that trip to Cabo. But all good things come to an end, and for whatever reason, you're ready to part ways.

    If it's really the end, be sure you have the timing right. Pick the wrong time to cancel a card and you could damage your credit score -- and the rest of your financial life.


    Follow these seven tips as you consider when to cancel your card. (Also see how to cancel a credit card).

    It's a good time to consider canceling a card if:

    1. You're not going to be getting a loan any time soon. If you're hoping to finance a car, home or college tuition sometime soon, your credit score will help determine your loan terms. And your credit score will be dinged if you cancel a card and lower your available credit. While it won't do permanent damage, you'll want to have a few months' buffer between canceling and applying for a loan, says Kimberly Lankford, a contributing editor at Kiplinger's Personal Finance magazine. "If you still want to do some housecleaning and close out some cards, don't do it all at once," she says. "Close them one of a time, and wait a few months between canceling them. You definitely don't want a lot of action on your credit report all at once."

    2. You have plenty of other offers in the mail. One quick way to see if your credit is still in reasonably good shape and you won't have future credit problems if you cancel a card: Your mailbox. "If your mailbox doesn't still contain offers for credit cards, then you are not a candidate for new credit," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "You better hang on to what you've got."

    3. Your balances are at zero, or close to it. If you're someone who uses credit cards only in an emergency, or very sparingly, dropping a card (as long as you have more than one), should have very little impact. Your credit score is affected by your utilization ratio -- that is, the amount of credit you're using in a given month compared to the amount available. If you can keep that ratio low even after you cancel the card, you'll be in good shape, says Lankford. "We recommend trying to keep that overall utilization ratio at 30 percent of your available limit, and 20 percent is even better."

    4. You plan on staying put. If you have a stable job and housing situation, you don't have to worry as much about the potential impact of canceling a credit card, says Scott Crawford, CEO and co-founder of DebtGoal.com. You won't be walking across credit score tripwires. "Employers may look at your credit score when you're applying for a job, and landlords look at it for prospective renters," he says. "If you're in a position where you might be moving or looking for a new job -- a real possibility these days -- you want to protect that score."

    5. You're likely to give into retail temptation. Sure, it's wise to keep open those lines of credit, but if having a credit card means you'll max it out, it's best to look at the big picture. "If you're running up big bills, it doesn't matter if you've got two cards or 20," says Michael Eisenberg, principal at Eisenberg Financial Advisors in the Washington, D.C., area and a member of the American Institute of Certified Public Accountants' National Financial Literacy Commission. "If you're only paying the minimums, you're throwing money away. It's more important to get in control of your finances than to worry about taking a hit on your credit report." Cancel the cards -- and give your finances the first aid they need.

    6. Your card company has changed terms -- and won't negotiate. The tough economy is causing many credit card companies to lower credit limits and jack up interest rates. If you're feeling the pinch, call them and ask them if you can return to your old terms. If not, it may be a good time to cut the cord. "If they say no, you can tell them you'd like to decline the term changes and close the account," says Cunningham. "You'll continue to pay out your balance under the old terms. You won't have charging privileges, and the account will be closed once you've paid it off, but you can keep those old terms -- if you want to play hardball."

    7. You want to simplify your finances. Sometimes, less really is more, says Crawford. "If you've got a dozen active credit cards and you're playing the balance transfer game, you probably can't manage it, and you may be increasing your debt without knowing it," he says. "For situations like that, creating a simple, transparent view of your finances -- and that might mean just three or four cards -- can be really advantageous. Canceling your cards and taking that slight hit on your credit score may be worth it."


    source-creditcards.com
    Last edited by mdowdy; 02-08-2009 at 01:54 PM. Reason: to add source
    Mdowdy

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    Default Re: 5 Ways to Kill Your Credit Score

    Thanks for the GREAT info, McDowdy! I wish I would have listened to my mom when I was younger. She told me to never get a credit card. I thought I was smarter and could beat the system. I'm much wiser now.
    April
    http://www.budget101.com/groups/homeschoolers.html
    Neither a borrower nor a lender be.
    I should have listened to Shakespeare!

 

 
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