The 5 Ways You're Ruining Your Credit Rating | Auto Finance

By JasonLancaster
Total views: 1
Word Count: 608

Protecting your credit rating isn't easy. Credit cards, auto loans, home equity loans and our suspect health insurance system can ruin your credit score. From easiest to hardest, here are the dangers you need to look out for:

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

That's right, aside from cancelling your credit cards, using them too much is the easiest way to ruin your credit. Banks like to see credit cards with a high limit, but with little or no balance. These "open" cards indicate a responsible and disciplined consumer. However, if your cards are maxed-out, you're giving banks the impression that you're living beyond your means, and your credit score is going to drop. The easiest fix here is to apply for more credit cards and to request a higher limit on the cards you have. Just make sure you don't use this new credit -- otherwise you're just making your problem worse.

3. Medical Debt Collections

We've all had this happen: your doctor's office sends you the bill for something your health insurance is supposed to cover. Next thing you know, wires get crossed, the insurance company doesn't pay the bill, and the doctor's office turns the debt over to collection. Believe it or not, this happens all the time. To make sure it doesn't happen to you, pay attention to every bill you get and follow-up with both your insurer and your doctor to make sure the bill is paid. It's a little extra work on your part, but it's well worth it -- one single medical collection can drop your score 50 points.

4. Co-signing a loan

Co-signing a loan for a friend or family member is sure to win you brownie points with them - but those points might be coming straight from your credit score! You are responsible for any loan you co-sign on, and if the bills aren't paid or your co-signer files for bankruptcy, your credit rating will decrease. Even if you can prove it's not your fault, or you haven't filed for bankruptcy yourself, your credit will still be affected. Be wary - don't co-sign for anyone unless you can afford to pay it off yourself.

5. Overdue Payments

It's amazing to me, but a lot of people have a hard time remembering to pay their bills. In fact, I've seen credit bureaus of people that SHOULD have perfect credit but don't, simply because they can't remember to pay their bills before they're due. If you're one of these people, you should take immediate action. Visit your current bank, ask them about their "automatic bill paying" program, and enroll ASAP. Once you're enrolled, the bank will send out a check to your creditor automatically each month so you never have to remember. Besides helping your credit, it can save you hundreds of dollars of late fees each year.

About the Author

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

You are here Articles > Cars and Trucks > Auto Finance