Protecting Your Credit Score
While it’s difficult for me to write anything relating to credit scores without spending the majority of my time ranting and raving about the self-proclaimed guardians of all things credit (Experian, TransUnion and Equifax), it’s a sad fact of life that the average consumer must kowtow to these big companies if they want to be able to do things like finance a car or rent a place to live.
Unless you are wealthy, or simply don’t care about having to qualify for a loan or being approved to rent a place to live, keeping your credit score in or above a “Good” rating is pretty important. Although we keep hearing from politicians that the financial troubles that started in 2008 are behind us now, a lot of people are still struggling and are hard-pressed to find any evidence of a real “recovery.”
Difficulty with finances can lead to a whole host of problems, including a reduction in your credit score. That may not seem like something that’s worth worrying too much about when you are struggling to scrape up enough money to put food on the table or a roof over your head, but maintaining a good credit score is something that is well worth the effort if it all possible.
Here are a few things you can do to prevent your credit score from dipping into negative territory.
1. Don’t Pay Late
Make no mistake, banks, credit card companies and other financial services companies take notice when you make a late payment. They notice this and they have a very long memory. Making payments late – or not making them at all – can have a very serious impact on your credit score.
Yes, it’s quite understandable that someone would opt to make a loan payment late or even skip it entirely when it’s becoming difficult to pay for things like food, heat and rent, but oftentimes it is worth it to get creative when it comes with coming up with cash to make loan payments. Perhaps there are some things you own that you can sell. It’s easier than ever to sell things for some quick cash, thanks to online marketplaces like eBay and Craigslist.
Missing just one payment will often lead to missing many more, so it’s worth it to pull out all the stops and come up with a way to make your payments on time.
2. Don’t Max Out
At one time or another we have probably all joked about maxing out our credit cards for one reason or another. While it may sound like an attractive idea under some circumstances, in real life, running your credit card balance up to its limit is never a good idea.
It’s often very tempting to whip out the credit card when we want something that we currently cannot afford. That’s often the start of a trip down the road to financial trouble. As a general rule, it’s never a good idea to buy something when you cannot afford it. Saving up the money for something you want does not sound like an attractive prospect and can take a long time, but you’ll benefit in the long run by not going further into debt.
Saving up for something also allows you to continue to have access to your money in case of emergency. Instead of using a credit card to buy that new $600 smartphone, try saving up as much as you can afford each week. If, at some time during the time you are saving, you have an emergency, like your car breaking down, you will be able to use that money you saved to help pay for repairs. Sure, it stinks to wipe out your savings to get your car fixed, but it’s better than not having a way to get to work!
3. Applying Too Often
Yes, many of us are virtually flooded with offers for credit cards and other kinds of loans all the time, but that doesn’t mean you need to apply for every one that comes in the mail.
Every time you apply for credit, something called a “hard inquiry” bumps up against your credit history and can negatively impact your credit score. Yes, the credit bureaus watch everything very closely and hold it against you even for applying for more credit. Although these hard inquiries don’t have a huge effect on your credit score, all those applications for credit signal that you may be and indication that you are having financial problems and is not something the credit bureaus will look upon favorably.
4. Never Using Credit
This one is a bit counterintuitive for sure, but if you never bother to get a credit card or take out any type of loan, you can damage your credit. What happens is that you basically end up with no credit history at all, and that means you are kind of a “blank page” when and if you do try to get credit, and that will make potential creditors more wary about lending you money.
Even with no credit history it is possible to get started building up a good score. There are many credit card offers for people who have bad credit or simply want to get started building a good credit history. In some cases, it may be necessary to apply for a secured credit card which is one where you have to deposit money before the card is issued, but secured cards are still a good way to build credit.
5. Don’t Give Up
It can take a long time and a lot of effort to build up a good credit history, particularly if someone had serious financial problems that caused their credit score to sink into the “Poor” or “Very Poor” category.
It may take up to seven years for negative marks on your credit history to disappear and that can be discouraging, but it pays off in the long run to stick with a good plan to rebuild credit. It’s never too late to turn your credit score around and change a negative score into one that will open doors for you when you apply for a loan or a new place to live.