We often get told exactly what we need to do in order to build up our good credit, but there are also small things we’re doing that we might be causing our bad credit and not even know it. And while many of us assume it’s simply a matter of stopping our overspending, and paying off our balance in full every month that will save us, there are also several surprising ways we’re causing ourselves to have a poor credit rating and not even know it. Until now.
Applying for more credit
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Canceling zero-balance credit cards
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Being someone’s co-signer
If your co-signee falls behind on bills or stops paying the debt all together, you take on responsibility for the debt, and that will have a negative impact on your credit rating. Even one missed or late payment will show up as a negative on your score, so avoid falling into the helpful trap of co-signing.
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Renting a car
Even the rental company’s credit check can impact your credit score — if the company’s check is considered a ‘hard inquiry’ (like when you apply for new credit), it will decrease your credit score by several points.
Your best bet? Shop around, ask questions, and only rent a car if absolutely necessary.
Missing even one payment
The solution? Pay your late payment as soon as possible within a 30 days of the initial missed payment. Creditors have to wait 30 days after the missed payment to report the miss before it will affect your credit. And if you’re going to be really late? Better call your creditor and try and make alternate arrangements.
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Closing old accounts
Obviously, there might be a very good reason to close out your account, but think twice, and when in doubt, contact your bank and ask to speak to a banking specialist. And while you’re there, don’t forget to ask how you can save for retirement!
Paying off your credit card too quickly
Your best bet? Save credit purchases for larger items that you can pay back both principal and interest on over several months.
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Always paying late
If you’re always paying late because you’ve got too much debt, there are ways to better keep track of your spending and reduce your credit card debt once and for all. You’ll have to buckle down, but it’ll be worth it.
Keeping a high balance
Not sure what the sweet spot is? Most lenders look for a ratio of no more than 30% of a balance against the full loan amount, so making bigger principal payments, and living within your means is the way to go.
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Not being proactive when trouble arises
If something does come up, it’s best to contact your lender immediately. Sometimes, you can have interest payments put on hold, or you can ask for a lower monthly payment in order to get your finances back on track. But you can’t wait until you’re swimming in collections notices. Be proactive, and remember it can happen to the best of us.
Not sure where to begin? Figure out what to say to your lender after learning these 20 financial terms you should know.