People don’t want to damage their credit score willingly. A good credit score is always proven worthy at the time of getting new lines of credit. Particularly, most of the mortgage lenders consider credit scores to evaluate a borrower’s credibility. After verifying the financial status, the lender decides interest rates that he’ll offer to the borrower. So, the more your credit score become low, the more you’ll lose your chances of getting any kind of monetary help from others.
Whatever you do, try your best not to:
1. Skip payments - Your credit score will remain unharmed if you pay your credit card bills on the due date and in full. But, if you suddenly start skipping your payments, it’ll probably start creating a mess. After skipping the bills for 30 days, which is one complete payment cycle, you’ll be treated, delinquent. This information will get listed on your credit report for a certain period of time, and will remain there if you don’t pay off the amount entirely.
But it’s not all. After paying off the installments it’ll be still listed as "historical delinquency". If anyhow you became delinquent for long 90 days, you’ll be in a grave trouble. Your case will be taken as major delinquency and it’ll be stabbed on your credit report for long seven years, even if you pay it off.
2. Utilizing your total available credit - Do you know how much credit is available to you? If yes, then use as minimum as possible from it. It’s not mandatory that you must use all the available credit you have in your wallet. Suppose you have $35,000 credit available to you cards. Then you must remember, in any circumstances don’t use $34,999. You must keep your credit utilization ratio as low as possible for you. Credit utilization ratio is very much influential when credit bureaus calculate your credit score.
It is also advised by the financial experts that an individual mustn’t use his/her available credit more than 30-50% of the limit. It would be great if you can keep the ratio below 10%. The persons having the highest credit scores in the country used their credit within 7% to 10%.
3. Closing credit card accounts - If somehow your credit score is getting low due to misuse of credit cards, you might want to close several cards irrespective of their credit limit. But, you should think about this twice. If you close your several credit cards and stop using remaining cards at all, you'll eventually refrain yourself from scoring credit. As a result, you can’t avail any kind of loan or any other line of credit any further.
If your credit card company realizes that you’re no longer swiping your card, they might gradually lower your credit limit or even close your account. So, what you’re gonna do then? You may use your cards to pay for utilities which you anyhow need to pay. Do not gather more debts which you can’t afford to pay. Do not open several new credit cards or close several old cards at a time.
4. Using only one card - We all must prepare backup for every financial resource, even for credit cards. Using only a single credit card can be very harmful to your credit score. It’ll become worse if you have high or unstable credit utilization ratio.
5. Closing old accounts with high credit limits - Suppose you have one card with $20,000 credit limit and another one with $4000 credit limit. You also have $1,000 balance on the card with a 4,000 limit. So, if you need to close any one credit card account, which one would you prefer? If you close the $20,000 credit card, your available credit will be transferred to $4000 limit credit card. It is bad. As soon as you close and transfer the balance, your credit utilization ratio will go higher (25%). But if you close the $4000 credit limit bearing card, your credit utilization ratio will be 4% only.
6. Not paying due taxes - If you keep getting delinquent to your payments, especially in paying taxes, I’m afraid it would have a major blow to your credit score. The IRS can place charges or liens, which will be added to your credit report.
7. Home selling through a short sale - A short sale is nothing less than a mutual agreement where the lender accepts less money than the total outstanding loan balance owed by the property owner. Selling your home by the short sale will be considered as a settled credit and will be listed in your report for 7 years as a major delinquency.
8. Being a co-signer for others - Co-signing for others may seem okay to you, but often it may become the worst scenario ever. Bank or any other financial institute will ask for a co-signer when they find the applicant not enough creditworthy. Being a co-signer means you’ll be liable for paying off the loan equally as the borrower. As soon as you sign the documents, your credit report will show the liability. Later, if you apply for a new line of credit, your lender will consider that previous loan which you co-signed while calculating your debt-to-income ratio. By any chance, if the other person stops making further payments, the total loan will be your responsibility.