Financial Mistakes That Hurt Your Credit Score

Keeping a good credit score can be hard work. It takes lots of diligence and the ability to make smart decisions that will keep your score high. It is also important to avoid making financial blunders that will drive your score further down. Listed below are some of the top financial mistakes that individuals make that hurt their credit score.

Taking On Too Much Credit
There is such a thing as too much of a good thing and taking on too much credit can actually hurt your credit score. You could pay all of your debts on time and a lender may still not grant you credit because you have too much credit. Lenders refer to this as being overextended and you will fail to qualify for credit. It is a good idea to keep the amount of credit that you have access to limited to an amount that is dwarfed by your overall income.

Applying For Too Many Loans
A lot of people make the mistake of letting too many lenders run their credit when they are looking for financing for a home or a car. Letting more than two lenders run your credit score in a short time frame can hurt your credit score badly. The credit
bureaus look at this unfavorably because they figure you are having a hard time getting access to credit. An excellent credit score can fall really fast from too many loan applications.

Having Only One Type Of Credit
It is never a good idea to have only one form of credit on your report. Having only one type of credit will actually cause your credit score to drop. The best type of credit profile is one that is varied and has a nice mixture of credit. This is a credit
profile that has some credit card debt, installment debt, and loans. That shows a nice balance to the credit bureaus and will keep your score from plummeting.

Closing A Credit Card With A Balance
Closing a credit card with a balance on it is a terrible decision. When you close a credit card with a balance, your available credit will drop to zero. The balance that you owe does not disappear and the card will look as if it is at its limit to the
credit bureaus. Your credit score will go down for being maxed out on a credit card account that you closed.

Cosigning For A Borrower Who Does Not Pay
Cosigning for a loan can help a borrower get access to credit but it can also put you on the hook for loan payments. The cosigner has to make payments in the event of a default by a borrower. If the primary signer fails to make payments as agreed then
your credit score could suffer. Lenders may take a few months before contacting you to let you know that the borrower failed to pay. Your credit score will have already dropped before you can do anything about it.

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5 comments

  1. Jeremy @ Personal Finance Whiz says:

    Oh cosigning on a loan is such a terrible idea. I know so many people that have been burned because the other person stopped making payments.

  2. Maggie@SquarePennies says:

    We would never co-sign on a loan. You are risking taking on the entire loan all by yourself. who needs that risk? If they can’t afford the loan they should make other arrangements, like continue to rent.

  3. Charles says:

    You forgot one big important point. Not paying bills on time hurts your score more than anything else. I would never cosign with anyone, outside of family. It’s just ridiculous.

  4. LaTisha @YoungAdultFinances says:

    I knew when I was shopping around for an apartment that I had to get everything done within the month. No need to have several hard credit inquiries show up over the course of a month or two.

  5. Monica says:

    It is the most basic things that trip people up when it comes to managing their credit score. You listed excellent points, and with the new CoreScore company entering the marketplace in 2012, everything you make a payment on will go on your credit report. This includes rent, payday loans, child support payments, etc. Any late payments will be noted and affect your credit score as well.

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