Whether you’re recovering from debt, or just looking to secure your financial future, understanding credit is essential. Sometimes, though, learning what not to do is just as important as knowing the best practices.
In this blog, we’re going to explore the top ways people can unintentionally destroy their credit score. Our aim is not to scare you, but to empower you with knowledge so you can avoid these common pitfalls.
- Closing Your Oldest Credit Card
- Too Many Credit Inquiries
- Maxing Out Your Cards
- Missing Payments
- Inactivity on Your Accounts
- Navigating Your Credit Journey: A Path to Recovery and Stability
1. Closing Your Oldest Credit Card
Your credit history’s length matters. It accounts for 15% of your credit score. When you close your oldest credit card, you shorten this history, which can negatively affect your score. It’s like erasing the longest chapter of your financial story.
- Keep your oldest accounts open, even if you’re not using them frequently. They’re the bedrock of your credit history.
2. Too Many Credit Inquiries
Each time you apply for credit, there’s a hard inquiry on your report. While one or two won’t hurt much, several inquiries in a short period can damage your score.
- Apply for new credit sparingly and only when necessary.
3. Maxing Out Your Cards
Credit utilization – the ratio of your credit card balances to your credit limits – is important. It makes up 30% of your score. High utilization suggests you’re over-reliant on credit, which can be a red flag to lenders.
- Keep your utilization below 30%, and ideally under 10%, to maintain a healthy score.
4. Missing Payments
Your payment history is the most significant part of your credit score, contributing 35%. Late or missed payments can stay on your credit report for up to seven years.
- Always pay on time. Set reminders or automatic payments if you’re prone to forgetting due dates.
5. Inactivity on Your Accounts
Not using your credit accounts for an extended period can make it difficult for lenders to assess your creditworthiness. Inactivity can lead to account closures, which may harm your score.
- Use your credit accounts periodically, even for small purchases, to keep them active and in good standing.
Navigating Your Credit Journey: A Path to Recovery and Stability
Avoiding these common mistakes is key to maintaining a healthy credit score. Remember, credit is a tool, not a trap. Used wisely, it can open doors to financial opportunities. But missteps can lead to consequences that take years to rectify.
A strong credit score is not only about accessing new credit; it’s also a critical factor in debt recovery. A healthier credit score can offer better terms when restructuring or consolidating debt, making the journey out of debt more manageable.
If you’re struggling with debt and feel overwhelmed, remember, you’re not alone. Our team of licensed insolvency trustees is here to help. We offer personalized advice and solutions tailored to your unique financial situation. Reach out to us today, and let’s work together to get your financial health back on track. You can apply for a secured credit card from NEO to help you rebuild your credit.