Don't kill your credit with sloppy mistakes
Image Source: Flickr CC User Ken and Nyetta
When you’re just coming off a Chapter 7 or Chapter 13 discharge, rebuilding your credit is imminently important. And even when your credit is back on track, you must work at keeping it high. Here are seven of the fastest ways to kill your credit score – avoid these actions to keep your FICO score from tanking.
#1 Missing a Bill Payment That Reports to Credit Bureaus
You may think that missing payment after payment will erode your credit score over time. But in fact, a recent study by FICO (the company that develops credit score calculations) showed that the first time you miss a payment that reports to the credit agencies, your score can drop by up to 100 points (or more). Subsequent late payments actually don’t hit as hard as that first missed bill.
#2 Getting Too Many Credit Cards
This is a double-edged sword. If you don’t ever get new cards, your score can drop because having new accounts tends to boost your score. But if you have too many, your credit can also take a beating. Plus, if you have a large number of cards in your wallet and then run into a financial hiccup like a job loss, you might be tempted to max out those cards to get out of trouble – landing yourself deep in debt once more.
#3 Getting Rid of Credit Cards
Closing older accounts can also hurt your credit. Part of your credit score is calculated by averaging out the length of your credit history. Getting rid of an older card usually drops the average age of your credit – resulting in a dip in your score. Instead of closing an older card that may have less than favorable terms, talk to the card issuers about making your terms better or converting the account to another type of card.
#4 Running up Credit Cards
The best credit score will come from having multiple credit cards and lots of available credit – and NOT using all of it or carrying any balances. Not only can carrying balances cause costly interest charges, but carrying debt month to month tends to be a slippery slope. You’ll accumulate more and more interest charges, rack up debt, and end up lowering your credit score.
#5 Applying for Too Many Cards at Once
When you apply for new credit, your application generates an inquiry that shows up on whatever credit report the creditor relies upon (they'll typically check with just one of the three agencies – Equifax, Transunion and Experian). Each inquiry can lower your score a bit, and the more inquiries, the harder the hit to your score. After a few months the impact lessens, but sending off a bunch of applications at once isn't a good idea.
#6 Failing to Monitor Your Credit Reports
You should check on all three of your credit reports every so often to make sure there are no errors, no one has taken your identity and opened fake accounts, and that there are no collection items showing that need to be taken care of. It’s a good idea to pull each of your reports at least twice a year and go through them with a fine-toothed comb.
#7 Assuming Your Credit Score Is Good
A shocking number of consumers don’t know what their credit score is and don’t realize they need to monitor it. Your score can change and you won’t know it. It’s a good idea not only to check all three of your credit reports periodically but to sign up for a monitoring service that will notify you if your score itself changes. This can alert you to situations you need to correct.
Having good credit is something you need to work at – it doesn’t just happen. To find out more about improving your credit score after bankruptcy, contact Credit Score Keys today. We help North Carolina consumers get their credit back on track after a Chapter 7 or Chapter 13 bankruptcy.