How to Stop Sabotaging Your Credit Score

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If your credit score isn’t where you want it to be, you’re probably not even aware of these few simple things that you’re doing that help to sabotage your score. From maxing out your limits to unresolved credit accounts, damaging your credit score is as easy as missing a few payments. Looking to take back control of your financial future? Here’s how to stop sabotaging your credit score.

Don’t Max out Your Credit Limits

This is a mistake people often make, as it can be incredibly easy to reach your credit limits; especially if you’re an eager spender. The problem with things like credit cards is that they give you a false sense of “having enough” money. You’ll see a $500 and think “Well, I’ve got $1,000 in credit. I can afford this.”  The problem is that you don’t actually have $1,000, but rather a borrowed amount that you’ll have to repay at a high-interest rate.

$1,000 on a credit card is not the same as having $1,000 in cash on hand, and that $500 item you wanted can end up costing closer to $600 or even more if you miss payments. Maxing out your credit limits is a surefire way to add some extra damage to your credit score.

The best thing to do is to keep your spending well below your limits. This is referred to as your credit utilization rate, and Experian suggests keeping this ratio at below 30%. If you’ve got $1,000 on a credit card, don’t use more than 30%, or $300 on your next purchase. Pay off that amount, and then use the card again.

Stop Missing Payments

If you’ve made a habit of missing payments, you’re already in a bad spot. Missed payments go directly on your credit score, and depending on how long it’s been since you missed the payment, it can have a bigger impact on your score and how creditors view your creditworthiness. Someone who constantly has 90-120 day late payments is not likely to have much luck getting credit in the future.

Staying on top of payments can be challenging if you have too many open lines of credit, but it’s certainly not impossible. Set reminders for yourself on your phone or computer a week or two before your payments are due. This will give you time to prepare and to curb spending in order to meet your obligations.

Don’t Use Any Credit, Right?

Some people think that using no credit at all is the best way to have a good score. After all, you can’t possibly have a good score if you’re not using any credit, right? The fact is, using no credit is damaging to your score as well. You must use some credit in order to build up a credit profile and so that future lenders can determine your creditworthiness.

If you’re worried about reaching spending limits or not being able to handle your credit cards, open a card with a low credit limit. A card with a limit of $2-500, you can control your spending and not find yourself in quite as much debt at once. If you can manage this card with no issues, you can take the leap to a card with a higher limit; just remember the optimal credit utilization ratio of 30% of your total credit.

Stay Informed

Keeping yourself informed is perhaps the best way to get your credit score under control. Those who never check their scores or their reports have no idea what’s happening on the other end of things, making it all the more difficult to actually solve the problem at hand. How can you address a problem if you don’t even know what it is?

At the very least, you should be checking your credit report once per year. Annualcreditreport.com is the only website that’s authorized by federal law. Once per year, you can get access to all three of your reports from the major reporting bureaus, completely free of charge. This useful service can help you gain a better understanding of where you’re at financially, and give you valuable insight into your financial practices.

Should you find yourself struggling to get your financial decision-making up to par, you can talk with a financial advisor to help you craft a more solidified plan for the future. Compare the best financial advisors online to get a price that meets your financial needs.

Resolve Collections Accounts

Whether you’re a record executive in Los Angeles or a factory worker in the midwest, collections on your credit report have the same effect; they damage your score. Collections are something you’ll want to avoid at all costs. They don’t look good to future creditors, as they’re pretty much a big red flag that says “I didn’t meet my financial obligations”. Unresolved collections accounts will stay on your report until they’re paid; which could be years if you continue to ignore them.

Conclusion

Overall, the best way to maintain your credit is to be responsible with your borrowing and your spending. Don’t use too much credit, don’t miss payments, and whatever you do, don’t let accounts go to collections.