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5 Ways to Ruin Your Credit

Your credit score is the number that tells lenders whether you can handle taking on new debt. It tells the lender how well you are managing current debt, and whether you have a good reputation with on time payments and paying what you owe.

Sometimes your credit score is lower than you want to it to be because of little mistakes that add up, and just by realizing what they are you can avoid these unnecessary dings to your credit. Keep reading for 5 sneaky ways to ruin your credit score.

1. Not having credit at all

It’s a common mistake to not have any credit accounts at all and think this is a good thing. Of course it does  mean you are functioning with no debt, and that’s wonderful. But this also means you have no credit history (think of your credit history as your financial reputation). Without credit history, there’s no way to get a credit score.

To fix this, start by opening a couple of credit cards. Don’t carry a balance, and pay them off on time every month. Over time, this will build credit history and your score will grow.

2. Maintaining a high credit utilization rate

If you carry a balance on your credit cards, but pay at least your monthly minimum on time every month, you may not see the problem. You are holding up your end of the deal, after all. However, your credit score takes into account your credit utilization rate. This is the percentage of your credit limit that you are using. In other words, if you have a $1,000 limit and you carry a $750 balance, your utilization rate is 75%.

To raise your credit score, bring your credit utilization rate down. Pay down balances and aim to keep them below a 25% utilization rate. If you meet this goal and maintain it for a few months, you should begin to see it reflected in your credit score.

Related: What are my closing costs when buying a home?

3. Errors

Ballard real estate agent Conor MacEvilly says, “in some cases, your credit score may be lower than it should be because of something that has nothing to do with you. If you are concerned that there may be errors on your credit, you can dispute them to resolve the issue. To do this, contact the credit bureau that issues the report that contains the error and file a claim.”

4. Making too many inquiries

Every time you apply for credit, that inquiry can lower your credit score. If you do this on a regular basis to shop around, you may be damaging your credit score without realizing it. The best way to avoid this is to make all of the inquiries for a purchase (like a car loan) within a 14 day period. This shows credit bureaus that it was a part of the same event, and it will only be reported on your credit score once. The same goes for applying for a mortgage. When you apply for mortgage pre-approval, apply at multiple lenders at the same time to protect your credit.

5. Not thinking about the little things

One of the sneakiest ways your credits core can be damaged is with little things that have been forgotten, and add up over time. This includes tiny debts, like a late fee at the library or a medical bill you forgot about. Even if the debts themselves are under $100, they show a disregard for your debt and a willingness to stop paying what you agreed to pay. While this may not always be fair, it’s how credit scores work. The best way to avoid this is to set up automatic payments for at least the minimum payment on all your debts. By automating payments, you don’t have to count on remembering to pay them on time.

If it’s too late and you already have some delinquent payments, just make the call to set up a payment plan to the delinquent payments. Once you have a new plan in place and begin making on time payments, you will start improving your credit.

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