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4 Ways to Ruin Your Credit Without Really Trying

When you apply for a loan or a credit card, the first thing lenders look at is your credit score. While it may seem like a small thing, this three-digit number determines whether you get approved for new credit and what kind of interest rates you’ll pay. The higher your number the better, but it takes time to build up a solid score.

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Destroying it, on the other hand, is much easier and can happen whether or not you even realize it. Even if you think you’re using your credit wisely, you could actually be doing more harm than good. Avoiding these common mistakes can prevent you from dragging your score down unintentionally.

1. Pushing the Limit

There are several different systems that are used to calculate credit scores but lenders tend to place the most weight on FICO scores. Your FICO score is determined based on five different criteria, including your debt utilization ratio. In simpler terms, this is the amount of debt you owe compared to your total credit line. The higher the ratio, the more your credit score suffers.

If your cards are close to their limits or you’ve got a loan that you have yet to make a serious dent in, it gives lenders the impression that you’re overextended. Even if you charge close to your credit limit each month and pay it off, it still impacts your debt to credit ratio. If you want to keep your score high, your best bet is to keep your balances low.

2. Paying Late

Just about everyone has forgotten to pay a bill on time at some point but this not-so-harmless oversight could end up costing you big. Your payment history accounts for the biggest chunk of what goes into your credit score, making up 35% of the pie. The longer it takes you to get your payments caught up the more damage it ends up doing to your credit.

Once you reach the 30-day mark, you can expect your creditor to report the late payment to the major credit bureaus. Even a single late payment could cause your score to drop as much as 100 points. Once you get to 60, 90 or 120 days late, your account becomes seriously delinquent. If it ends up getting sent to collections, you’ll end up with a major black mark on your credit.

Related Article: 3 Things That Won’t Affect Your Credit Score

3. Forgetting About Medical Bills

While a medical bill isn’t technically a loan, it’s still a type of debt that has the power to hurt your credit score. In fact, a recent report from the Consumer Financial Protection Bureau suggests that unpaid medical bills can actually skew your credit history, causing your score to appear much lower than it really is.

If you’ve racked up some hefty medical debt, the worst thing you can do is allow it go to collections. For credit reporting purposes, collection agencies treat medical bills the same as other types of unpaid debt. Once a collection account is entered on your credit history, it can stay there for up to 7 years, tanking your score in the process.

Related Article: Unpaid Medical Bills Could Be Dragging Down Your Credit Score

4. Not Checking Your Report

Your credit report is one of the most important tools you have when it comes to maintaining a good score. If you’re not reviewing it every few months, you run the risk of overlooking a potentially costly error. Taking the time to track down and dispute incorrect or inaccurate information is an easy way to clean up your credit and boost your score.

Checking your credit history is also important when it comes to protecting your information. If an identity thief gets their hands on your credit card numbers or bank account number, they could have a financial field day right under your nose. By the time you realize what’s going on, your credit has already taken the hit.

You don’t have to be a rocket scientist to bump up your credit score. Paying your bills on time, keeping debt to a minimum and knowing what’s in your report can all go a long way towards improving your creditworthiness.

Related Article: 5 Ways to Repair Your Credit

Photo Credit: flickr

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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