Your credit score can determine your credit limit, your ability to get a home mortgage, secure an affordable car loan, or rent a home or apartment unit. As you accrue a credit history, you create the financial trajectory of your life. Face it: it's easier to kill your credit score than re-build it. Whether you damage your rating through ignorance or by simply making poor decisions, you're going to suffer the consequences.
Here are some of the most-common ways to shoot your credit in the foot:
1. Fail to monitor your credit reports and report errors
Equifax, Experian and Trans Union are the three major credit reporting agencies. They often contain mistakes in your history. It's up to you to report errors and report changes to all three agencies.
2. Default on loans
Easily the most serious credit killer, defaulting on credit cards or loans can slash your score by 100 points. Don't assume debt you know you can't pay off by wishfully hoping for a better future income. A bankruptcy or home foreclosure is a credit crusher.
3. Make late payments
Running up a history of making late payments on debt can crater your credit score. Some 35 percent of your score is based on payment history.
4. Carry huge balances
Big balances increase the credit utilization ratio -- the total percentage of your usable credit limit -- and warns lenders that you're a risk.
5. Open too many credit card accounts
If you're one of those consumers that snatches up handfuls of store credit cards during the holidays to seize in-store offers, you might find as much as 30 points lopped off your score. Your would-be new lenders all ask for credit scores and your rating goes kerplunk. Yes, it's good for your credit to have a couple of cards that you regularly use, but too many raises red flags.
6. Co-sign loans for your family members
As a co-signer, you assume co-responsibility for defaults and late payments by family members. If the car or items purchased with the loans are re-possessed, welcome to a world of credit hurt.
7. Close credit card accounts
The lower your credit card utilization (credit used divided by available credit), the better your credit score. Closing card accounts lowers the total amount of credit available to you and can negatively impact your credit utilization ratio. It's a quick way to max out your existing credit and put you in a category of higher loan interest rates going forward.
8. Miss "trivial" details
You forgot to pay a few parking tickets, so what? You moved to a new town without paying off your library fines, or you misplaced the closing utility bill. No biggies? Yes they are. If these and other loose end items are sent to collections, you can watch your scores plummet. And don't forget any bank accounts you've depleted but haven't closed. If the bank applies penalties on delinquent account fees or sends the account to collections, your credit scores can take a surprise hit of ten or 20 quick points.
Whether your damaged credit score is a result of poor financial management or through common mistakes that many consumers make, it will impact your future. Paying strict attention to details, large and small, can help prevent a credit disaster.