Five Surefire Ways To Torpedo Your Credit Rating

The credit market sure has changed a lot over the last several years. It was not too long ago that you didn’t need to do much more than show up in a mortgage lender’s office, tell them how much you wanted to borrow and have them cut you a check. Verifiable income and good credit seemed to matter very little in the cheap credit era.

We’ve come to learn that this is certainly not the case. Lenders have gotten much smarter about who they choose to loan money to. They’ve also gotten stingier. Not everybody qualifies for a loan with a low rate any more. Borrowers need a rock solid credit rating to get their foot in the door.

Many have taken the steps necessary to improve their credit score but too many are still making basic mistakes that will prevent them from ever sniffing a top flight credit rating. If you want to get to that upper level, here are five mistakes you’ll want to make sure you avoid at all costs.

Make Your Payments Late

One of the biggest pieces of the credit score puzzle is the timeliness of your payments. Start missing the due date and your score will start dropping fast. Most lenders will give you up to a 30 day window to pay up to account for genuine mistakes but go beyond that and you’ll probably get reported to the credit agencies.

…or Don’t Pay Your Bills At All

Toss those bills into the sewer grate as Homer Simpson would do and you might as well flush your credit rating down there with it. One thing worth noting is that if you’re experiencing genuine financial difficulties, don’t just ignore your bills on the grounds that you can’t pay them. Contact the company and ask them if they have any type of payment relief or financial assistance programs available to you. At worst, they’ll work with you to see what can be done and understand that you’re willing to pay your debt.

Sign Up For A Lot Of Cards

Fill up your wallet with a bunch of cards and the credit agencies are going to think that something is amiss. A low credit used to credit available ratio is generally a good thing for your credit rating but opening up several new card accounts to increase your available credit is not the way to go about it.

Cancelling Those Unused Cards

This one is a bit counterintuitive. Getting rid of all those cards you never use should be a good thing, right? Look at the paragraph above. A low credit used to credit available ratio is good but closing out unused cards makes that ratio go up since your available credit is going down. That will negatively affect your credit score.

Declare Bankruptcy

This one is not counterintuitive at all. Declare bankruptcy and your credit rating will take years to recover and likely won’t ever make it back to where it was. Mortgages will be very difficult to obtain as will almost any conventional type of credit.

A good credit score is more vital now than it has been in years. Avoid the easy mistakes and rein in spending and you’ll soon find your credit score climbing.

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Author Info

This post was written by David Dierking. David lives outside Milwaukee, Wisconsin and has been working in the financial services industry for over 13 years with a background in investments, accounting, and marketing. He earned his Chartered Financial Analyst designation from the CFA Institute in 2004 and was recently published in the Milwaukee Business Journal. You can also check him out at The Ultimate Fit Challenge

4 Responses to “Five Surefire Ways To Torpedo Your Credit Rating”

  1. background screening |  Jul 26, 2010 at 3:34 am

    nicely written mate…

  2. David |  Jul 29, 2010 at 6:58 pm

    How can signing up for a bunch of credit cards and later cancelling those cards both be events that torpedo your credit rating? Outside of the credit check hit, those two events should have opposite effects.
    Over the last year I signed up for about 8 cards for bonuses. It didn’t lower my score at all. A couple days ago I cancelled 6 cards (I was going to have pay the annual fee in year 2 on several of them). I expect to take a slight credit hit, but I’m hoping that since the average age of my total cards will skyrocket, that will help balance out my lower total credit line.
    If you really want to torpedo your score, cancel your oldest cards. That’s a double whammy. People shouldn’t be too concerned about their credit score unless they actually need credit…for those of us that own a home and a car it’s just not that big a deal, and if a lower credit score costs me a few hundreds dollars down the road, I won’t forget that it helped make me over $1000.

  3. vast anthology |  Aug 19, 2010 at 6:53 pm

    Torpedo-ing your score is easy; what are 5 steps you can take to BOOST your credit rating. Next post?