Although it takes a while to build a good credit score, you can ruin it in the blink of an eye. All it takes is a bit of overspending, and a few missed payments and your credit score can be damaged for several years. Here are eight ways to ruin your credit that you want to avoid.
Opening a Credit Card Before You’re Ready
While you can technically get a credit card at age 18, being of age doesn’t mean you’re officially ready for a credit card. Before you apply for your first credit card, you should have some financial basics in place. You should be able to handle a checking account without making overdrafts, make deadlines without being told, and have good money management skills. Without some basic financial skills, you're at risk of ruining your credit before you get to use it.
Opening a Credit Card Without a Stable Job
Credit card issuers are required to ask for your monthly income before approving you for a credit card. However, they don’t always ask for proof of income or the amount of time you’ve been employed. Before you get a credit card, make sure you have a consistent income to make your monthly payments. Without steady monthly income, you may not be able to make your monthly credit card payments, which could cause you to miss your payments and hurt your credit score.
Opening Too Many Credit Cards at Once
Opening up several credit cards in a short timespan is often a symptom of a bigger spending issue that can lead to unaffordable balances and late payments. Aside from putting yourself at risk of overspending, opening up too many credit cards at once is a red flag to lenders because it seems as if you're desperate for credit. Credit inquiries account for 10% of your credit score, and every time you apply for a credit card, you will get a hard inquiry, and your score will drop slightly.
Skipping Your Credit Card Payments
It doesn’t matter whether you forget to pay, can’t afford to pay, or purposely miss your monthly credit card payments; your credit score will be affected either way. After 30 days, your late credit card payment is reported to the credit bureaus, and after six months, your account is considered in default. Since payment history is the biggest factor influencing your credit score, missed payments can cause serious damage.
Ignoring Past Due Bills
If you ignore a past due bill for whatever reason, the company will undoubtedly come after you for payment. They’ll call you and send letters for a few months to attempt to get you caught up. If that fails, they'll get debt collectors involved. Once a debt collector takes over the account, they’ll add the delinquency to your credit report, which will hurt your credit and ability to have applications approved in the future.
Letting Someone Irresponsible Use Your Credit Card
Unless someone steals your credit card, you’re responsible for any purchases made on your card. So, if you let your little sister borrow your card for pizza and she maxes it out on clothes and shoes, you’re responsible for the balance, whether you can afford it or not. The same goes for adding authorized users to your account as well. If they're going to have a physical credit card, make sure they're responsible borrowers.
Co-Signing for Someone Irresponsible
Co-signing a credit card or loan often seems like the right thing to do at the time. You want to help out your loved one, but you're putting a lot on the line for that person. Too often, the person you co-signed for goes rogue, doesn't make the payments, and leaves your credit in shambles. Remember that co-signing means you're accepting responsibility if the other person doesn't pay. You must be ready to step in and assume payments if you want to protect your credit.
Not Protecting Your Sensitive Personal Information
Many people become victims of identity theft because someone they knew and trusted opened accounts in their name. Keep your personal information safe to prevent anyone from gaining access to your accounts or opening new accounts in your name. This private information includes your bank account, credit card numbers, and especially your social security number.
The Bottom Line
Once you've ruined your credit score, getting a better one takes a lot of time and on-time payments. The mistakes you made will follow you for at least seven years (10 for bankruptcies), but fortunately, they won't look as bad if you turn your bad habits around and start being responsible with your credit.