July Financial Fitness Challenge—Six Slam-Dunk Ways to Trash Your Credit Score
It's a fact of financial life that if you want to borrow money, your lender will look at information about your credit habits before deciding how to price the loan.
If you're a good risk, you won't have to pay as much interest for the privilege of borrowing. If you've been a credit screw-up, expect a lender to charge you more. That's only fair, not only to the lender but to other borrowers the lender serves. It wouldn't be right to expect responsible borrowers to subsidize careless borrowers.
This is where your credit score comes in. It's a three-digit grade for your credit behavior to date. It changes all the time, based on your improving or deteriorating credit habits.
Obvious credit missteps
No surprises here, but it's worth reviewing habits that will trash your credit score:
The antidotes to these problems are straightforward: Always pay all your bills on time. Make this easy by setting up automated minimum payments for your loans and credit cards.
And it might take longer to accomplish, but get your credit utilization to less than 25%.
Your payment history, combined with your total debt, accounts for two-thirds of your credit score, so these three big factors require serious attention.
Not-so-obvious credit errors
Lenders like to see you have mixed credit sources—say, a few credit cards, a car loan, a mortgage—and handle them all responsibly.
Even if you clean up your payment act and pay down your total debt, you still can lose cred with other behaviors:
Why it matters
You know that your credit score influences what you pay for loans and credit cards. If that's not enough motivation to keep your score in good shape, know that it also affects other significant slices of your life: Jobs, housing, and insurance rates. A potential employer, landlord, or insurer could use information based on your credit history and score to decide whether to hire you, rent to you, or insure you.
A pattern of letting due dates slide, even if you catch up eventually, will take a toll.
You can check your credit report—the summary of your credit activity that generates your credit score—from each of the three major credit reporting agencies once a year for free. Always make your requests from the annualcreditreport.com website, the only site sanctioned by the Federal Trade Commission. Or, you can call 877-322-8228.
Financial Fitness Challenge
Your credit union personal finance professionals bring you this website and other tools to help you make the most of your money. The Financial Fitness Challenge continues to look at ways you can make better financial habits no matter what condition the economy is in.
Each month we randomly select five winners to receive $50 Visa gift cards; we choose each month's winners only from that month's entries, so enter every month. Remember to register for the Financial Fitness Challenge.
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