Keeping your credit in good shape is a full time job. If you lose track of your bills or liabilities you can damage your credit score.
A low credit score can impact everything from getting that apartment you love to getting a loan for a car. Not only does having a low credit score cost you more money over your lifetime, it can also cause a lot of stress.
Here are the three biggest credit score killers and some tips on how to avoid them.
3 Credit Score Killers
1. Not paying all your bills on time. Even the ones you think don't matter.
This one is pretty straight forward but there are some nuances that people don't often pay attention to.
The first step is to ensure you're paying all your utilities, mortgage, credit card bills and other loans on time.
But what about things like fees for overdue library books and unpaid parking tickets? Can these have a negative impact on your credit?
Yes. If you don't pay these fees and tickets in a timely fashion they could get sent to collections. Once something goes to a collections agency it's going to have a negative impact on your credit.
Pay attention to the details. A small overdue bill can have a big impact on your credit score. Pay every single bill, fee or ticket you get on time.
2. Using too much of your available credit.
Credit utilization is the percentage of your available credit that is being used at any given time. The higher your credit utilization the bigger the hit is to your credit.
If you have credit cards with a total credit limit of $10,000 and you are carrying a total balance of $6,000 then your utilization is high. It's recommended that your credit utilization not exceed thirty percent. The example above illustrates credit utilization of sixty percent.
The best move is to pay off your credit card balances every month. If you can't do that then do whatever you can to get your credit utilization score to thirty percent or lower. This is one of the quickest and easiest ways to increase your credit score.
3. Opening and closing accounts at the wrong times.
Another thing that will kill your credit score is opening and closing accounts when it isn't appropriate.
When you open a new line of credit your credit score will take a small hit. If you decide to open a bunch of new lines of credit at once you could really do some damage. Avoid opening several credit cards or other lines of credit all at once.
Where this gets most people is around the holidays when stores are offering deals by applying for their in store credit card. If you make the mistake of applying for a few of these cards all in the same day your credit could take a hit.
Applying for a new credit card will cause the credit card company to pull your credit. Just this one company looking at your credit can shave 15 points off your credit score. Now multiply that by 3 or 4 companies. It can add up fast.
Closing accounts is a bit trickier. People who get into trouble with credit cards usually want to pay off the balance and then close the accounts.
But this could actually do more harm than good. Let's assume you have a $10,000 credit limit between two credit cards. Both of them have a $5,000 credit limit but one of them you have maxed out and the other has a zero balance.
Your credit utilization is at 50%. If you close the zero balance card you just increased your credit utilization to 100% and this will kill your credit score.
Be careful about closing credit card accounts. It's a double whammy on your credit if the account you closed had been active for a long time. Length of credit history is also important to a healthy credit score. If you close old accounts you lose that history.
Make sure you're not making any of these mistakes with your credit score. If you're looking for a way to consolidate high interest credit card debt you might want to consider a cash out refinance. Get a free quote and see if this option is right for you.