A credit score or credit rating is one of the most important factors in your financial life. Unfortunately, there are many bad habits that could potentially affect your credit score by showing up on your credit history, following you wherever you go. Here is a list of bad habits to avoid in order to maintain a healthy credit score.
Missing a repayment
Making late payments or missing repayments on your loans is a definite way for a borrower to ruin their credit score. A large majority of your credit score is based on your payment history, so make sure you budget around those monthly bills.
Living beyond your means
The fact is simple: if you spend more than you earn, you’ll soon find yourself in serious financial trouble. Living beyond your means usually results in having to take out a loan. If you continuously spend more money than you make each month, you’ll soon rack up a large bill that you can’t pay back. Owing large amounts on your loan payments can hurt your credit score immensely.
While it’s good for you to spend money on yourself, impulsively buying something you didn’t budget for could really hurt your finances (especially if it is a luxury rather than a necessity). You could fix this problem by adding some money to your budget specifically for luxury buying and sticking to that amount. Essentially, impulsively purchasing a new gadget or appliance you can’t afford isn’t worth ruining your budget.
One of the fastest ways to ruin a credit score is by not sticking to your budget. Some people don’t know that they’re overspending their monthly income because they’re not keeping track of their expenses. If you’re not tracking your expenses, you could build up a lot of debt and be in some serious financial trouble before you know it.
Overlooking errors on your credit report
Errors or inaccuracies can get introduced in many ways but not knowing about the errors or ignoring the errors and not fixing them is an easy way to ruin your credit score. Some bills and payments, such as medical expenses or hospital bills, can go through a long process before billing you and are therefore more likely to introduce errors or inaccuracies. If you have to fix a problem with a bill, it’s wise to check your credit report to see whether it has been affected by the error.
Not alerting creditors when you change your name
While this may sound trivial, it’s one of the most common reasons for inaccuracies on credit reports. If you get married or divorced, you must inform all financial institutions about this change so that no mistakes end up on your credit report.
Another thing to consider is that while credit bureaus may keep separate credit scores for spouses, the actions of your partner can still impact your credit score. If one spouse fails to pay a joint bill or joint account on time, both of your credit scores could be negatively affected.
Not regularly checking your credit report
Ultimately, it’s important to check your score regularly to see if there’s anything there that shouldn’t be. Unfortunately, identity theft and fraud are common crimes in this technological society. By regularly reviewing your credit report, you can check that no one is using your name to borrow money or run up serious debts.
Refusing to pay
At some point in your life, you are likely to enter into a dispute with a vendor or creditor. It may be that new blender you bought online that broke as soon as you got it home or outstanding finance charges that you don’t think you should pay. Unfortunately, most vendors are quite strict when it comes to coercing you to pay. They can threaten to submit the outstanding amount as a collection item on your credit report, thereby dropping your score. Therefore, try to work out payment disputes in a timely manner to avoid this situation. It may take repeated letters or phone calls to senior people in the vendor’s organisation, but it is worth the time and trouble.
Your credit score is a number that will follow you wherever you go. Whether you are applying for a home loan, opening new lines of credit, or venturing into a new investment, your ability to obtain credit is incredibly important. Even small, seemingly arbitrary decisions can affect your credit score.
Change your bad financial habits by taking the first step. Generate your credit report so that you can start to see just how bad your financial habits are. Once you know what number you are working with, you will able to see just how much financial change you need to make in order to get a good credit score.