Poor credit scores hurt your ability to get loans for big purchases like cars and homes and, in some cases, affect your ability to rent them.
Unfortunately, nobody is immune from making mistakes that negatively impact their financial standing, which is why understanding what habits lead to a very bad credit score is so important. Here's a look at seven habits you should avoid to maintain or improve your credit score.
Missing credit card payments or loan payments
Missing credit card or loan payments can have serious consequences on your finances and credit score. Not only will you be subject to late fees and higher interest rates, but repeated missed payments can result in a damaged credit report which can take years to repair.
Additionally, missing payments can lead to debt collection efforts and even legal action. It is important to stay organized and keep track of payment due dates to avoid any negative repercussions.
If you are struggling to keep up with payments, consider speaking with your lender or a credit counselor for assistance and guidance on creating a repayment plan. Don't let missed payments derail your financial future.
Using too much of your available credit limit
Credit cards have become a popular way to make purchases and manage finances. However, exhausting your credit limit can have serious consequences. It not only increases the risk of accumulating large amounts of debt, but it can also lower your credit score.
A low credit score can make it difficult to obtain loans or credit in the future. Therefore, monitoring your credit utilization rate and aiming to keep it below 30% is important. This will show lenders that you are a responsible borrower and help maintain a healthy credit score. Remember, credit cards are a tool, and it's important to use them wisely.
Applying for too many loans or credit cards in a short period
Taking out multiple loans or credit cards may seem like a good way to get the money you need. However, it can also lead to disastrous consequences. Applying for too many loans or credit cards in a short period of time can negatively affect your credit score. Whenever you apply for credit, the lender checks your credit score.
Multiple checks in a short time can make it look like you are in desperate need of money, which can decrease your creditworthiness. This means the next time you apply for credit, lenders may charge higher interest rates, impose stricter terms, or reject your application altogether.
It's important to be cautious and thoughtful when applying for credit to avoid damaging your credit score and future financial stability.
Not checking your credit report regularly for accuracy
It can be easy to forget about your credit report when you have many other life responsibilities. However, neglecting to check your credit report regularly for accuracy can have serious consequences.
Mistakes on your report, like incorrect account balances or fraudulent activity, can negatively impact your credit score and potentially result in missed opportunities for loans or credit approval. It's important to stay proactive and take the time to review your credit report regularly to ensure everything is up-to-date and accurate.
By doing so, you'll better understand your financial health and be able to take the necessary steps to improve your credit score if needed.
Using cash advances to cover expenses
Life can be unpredictable, and there are times when unexpected expenses arise. Whether it's a car repair bill or a medical emergency, these expenses need to be covered quickly. One option is to use a cash advance.
A cash advance allows you to borrow money against your credit card’s available balance. This can be a quick way to get the money you need without jumping through hoops. However, using cash advances should be considered carefully as they often come with high fees and interest rates.
It’s important to know the terms and conditions before utilizing a cash advance. If used responsibly, cash advances can be a helpful tool in covering short-term expenses.
Ignoring debt collection calls and not responding to letters
Ignoring debt collection calls and not responding to letters may seem like a tempting solution to avoid dealing with financial struggles, but it is not without consequences. Debt collectors have the legal right to pursue outstanding debts, and ignoring their attempts to communicate could lead to legal action being taken against you.
In addition to the financial burdens already in place, unpaid debts can negatively impact your credit score and future financial opportunities. Rather than avoiding the issue, it is important to face it head-on and work towards finding a solution that works for both parties involved.
This could include negotiating a payment plan or seeking professional financial advice. Ignoring the problem will only worsen it and impact your financial future.
In Conclusion
Developing good habits related to your credit is essential for a bright financial future. While poor credit scores can be hard to recover from, avoiding these 7 habits can help you maintain a healthy financial standing.
Paying all loans and credit card bills on time, monitoring your credit reports for accuracy, using cash advances sparingly, and staying up-to-date on debt collection calls and letters can help you stay out of trouble with your credit score.
So take the initiative and effort to adopt the proper habits to build your credit score. The rewards are worth it!
