FOUR WAYS YOU HURT YOUR CREDIT SCORE

 

FOUR WAYS YOU HURT YOUR CREDIT SCORE

The main reason that most borrowers knowingly or unknowingly hurt their credit score is because they are not aware of the importance of the factors that are used in the computation of the credit score. The four ways that you hurt your credit score are:

DEFAULT IN MAKING PAYMENTS

This is one of the most important factors that are taken into consideration by the lenders. The lenders always look at your payment history before approving your application for credit. Your payment patterns give an insight to the lender as to how responsible you are in handling your finances. Your payment history reveals to the lender whether you can repay the loan or not. Lenders look for late payment or missed payment patterns in your payment history. Even one late payment can lower your credit score. The best way to avoid hurting your credit score is to pay your bills on time .If you are not able to pay the full amount, try to pay at least the minimum amount due before your payment due date.

HIGH DEBT-CREDIT RATIO

A high debt –credit ratio is a sign of high risk for the lenders. As a card holder if you are using your total credit limit in one go, even if you are paying off the entire amount due in full before your payment due date, this makes the lender nervous. It shows your irresponsibility towards managing your credit and adversely affects your credit score. The best way to avoid hurting your credit score is to use your credit limit only when necessary and restrict the use of your credit limit to less than 25% of total credit limit.

CANCELLING OLD CREDIT ACCOUNTS

This is another factor that most cardholders are not aware off.  Just because you have too many credit card accounts and you are not using them, so closing them might seem the right option to you. But closing them will hurt your credit score badly. The more lines of revolving credit you have, the better it is for your credit score. Your credit will shrink when you close your credit accounts. The lenders prefer long credit histories. These old accounts are adding to your long history of credit. So the best way to avoid hurting your credit score would be to keep your old accounts open.

TOO MANY CREDIT INQUIRIES

A credit inquiry is an important measure of your creditworthiness for the lenders. Too many credit inquires can definitely hurt your credit score and can even declare you bankrupt. Appearance of credit inquiries in your credit reports is a negative signal for the lenders. You should apply for new lines of credit only when there is a need. Applying for too many credits within a short span of time will make the lenders obtain a copy of your credit report from the credit bureaus and hurt your credit score adversely. So avoid application of new credit at all cost.