Few Mistakes that can Damage your Credit Scores
Posted by : Premraj | Posted on : Tuesday, June 17, 2014
In the wake of an economic scenario plagued by plummeting credit scores, million of outstanding debts and soaring prices, it has become all the more important (more than ever before) to analyze your finances. Your credit scores account for a crucial part of your finances as your chances of securing loans and insurance are dependent on them. Today, within the scope of the post we will discuss the top 4 factors that might hurt your credit ratings in a major fashion, thereby impairing your financial credentials.
Late payments, hefty loans, outstanding credit card bills are some of the common (or well-known) factors that affect our scores adversely. However, the math here is much more complex. Read on to know more about the lesser known ways in which an individual can hurt his credit scores.
Availing a Credit card with No Limit
Some of the credit card providers would allow you to obtain credit cards without any limit just as a means to propel their business. As much as you’re elated to get your hands on a no-limit card, know for a fact that these are not reported by the credit bureaus. As a result, your credit limit is reported as $0 (and not as UNLIMITED!). Your credit utilization (the ratio between your credit limit and use) is high and high credit utilization means low credit ratings.
Delaying a Loan Consolidation
Loan consolidation services actually prove very effective for borrowers saddled with outstanding student loans. But the most common mistake committed by the aggrieved borrowers is that they keep on delaying the aid of these services for long. If you have too many outstanding debts to deal with, it’s only wise to accept that a consolidation program is in the pipeline to get you sorted. They will help you club all your student loans together at a lower rate of interest than what you’re already paying on all your debts taken together. The more you’re delaying the process and the more defaults you’re committing with your present debts, the worse your scores are getting. However, it’s important to be discreet about the choice, since all consolidation programs do not offer exactly the same facilities. Reading Top Ten Reviews, asking friends for suggestion etc help.
Accepting a Department Store Credit Card
Department store credit cards are one of the major temptations that modern consumers fall for today. The lure of the “apparent” discounts can actually end up hurting your financial credentials. These cards carry much higher rates of interest than that of national cards like Visa or the MasterCard. It results in a hard inquiry on your credit report since you’re seeking some form of credit and an enquiry can lead to a 5-35 points (approx) drop on your credit report, depending on your present financial status.
Giving up your credit card
Much against the popular notion that resisting yourself from the temptation of spending too much with your cards will ultimately help your scores, it’s not actually not so. In fact closing it can affect your rating adversely. For instance, if you $10,000 dollars as the limit on your card and have spent $3000 then you have used 30 percent of your credit report and the utilization rate also remains 30%. The lower the credit utilization rate, the higher are your credit scores but if you’re completely throwing away your utilization rate by closing the card with zero balance then you would actually end up damaging your credit status.