The 5 Easiest Ways To Ruin Your Credit Rating | Auto Finance

By JasonLancaster
Total views: 4
Word Count: 597

These days, keeping a good credit rating requires navigating a dangerous maze of credit cards, home equity loans, auto loans, and an uncertain health insurance system. Here's a list of the top dangers to your credit score, from easiest to hardest:

1. Credit card closure:

Many people close credit card accounts as soon as they pay them off, making this the easiest and most common way that credit ratings are damaged. In fact, I've seen credit scores drop one-hundred points in as little as two months because a misguided consumer closed a couple of credit card accounts. Closing an account hurts your rating because it decreases your "percentage of credit available." Credit scores are based on many factors, but this percentage is one of the most important. The more available (or open) credit you have, the higher your credit score will be. Unless your credit card has an annual fee, NEVER cancel it. In fact, make sure you use it at least once a year to maintain your account -- just don't buy anything that you can't pay off as soon as the bill comes.

2. Maxed out spending

Banks like to see credit cards with high limits and minimal balances. These "open" cards are a sign of a financially responsible borrower they're likely to get their money back from. A maxed-out card, on the other hand, creates doubt about whether the card holder can afford their purchases, and leads to lowered credit scores. Applying for new credit cards and requesting higher limits on existing cards can help to fix this problem.

3. Health Insurance Mix-ups

Imagine this scenario: your doctor sends you a bill and you send it to your insurance company, thinking your policy covers it. Turns out, it doesn't, and the company doesn't pay your bill. So the doctor's office turns the unpaid debt over to collections, wreaking havoc on your credit score. Sound scary? It's a lot more common than you might think! Make sure this doesn't happen to you by paying close attention to all your bills, and double-checking with both your doctor's office and health insurance company to make sure every bill is paid. Sure, it might take some time, but the 50 points you'll save on your credit rating will be worth it.

4. Co-signing:

You've probably had family or friends ask you to co-sign a loan for them, and it might sound like a great idea. After all, why not help out someone you care about? But co-signing a loan is dangerous territory, credit-wise. You assume equal responsibility for the debt, and if the other person doesn't pay up, you're expected to. And if your co-signer files for bankruptcy, that'll show up on your credit report, even if you don't file anything yourself. Even if you can prove that the unpaid bills are your co-signer's fault, your credit rating will still suffer. Don't co-sign for anything, no matter how close the friend, unless you can afford to pay it yourself.

5. Overdue Payments

Can't remember to pay your bills? It could be the only thing keeping you from perfect credit! There are tons of people out there who do everything else right, but have poor credit simply because they pay their bills late. To make sure your bills are paid on time, every time, visit your bank and ask about an automatic bill payment program. Once you enrol in this, your bank will automatically send a payment to your creditor each month from your account. This will improve your credit by making sure you're never late with a payment again, and can save you money by preventing late fees!

About the Author

Author Jason Lancaster, a car business veteran, developed AccurateAutoAdvice.com. You'll find accurate auto advice and car buying tips.

You are here Articles > Cars and Trucks > Auto Finance