Although building a good credit record takes time, it can be destroyed in an instant. All it takes is overspending and a few missed payments, and your credit record can be damaged for several years. Here are eight ways to destroy your credit record that you should avoid.
Opening a Credit Card Before You Are Ready
While you can technically get a credit card at the age of 18, just being of legal age does not mean you are officially ready to have a credit card. Before applying for your first credit card, you should have some basic financial concepts in place. You should be able to manage a checking account without going into overdraft, meet deadlines without being reminded, and have good money management skills. Without some basic financial skills, you are at risk of destroying your credit record before you can even use it.
Opening a Credit Card Without a Steady Job
Credit card issuers are required to ask for your monthly income before they approve you for a credit card. However, they are not always required to ask for proof of income or how long you have been employed. Before you get a credit card, make sure you have a steady income to be able to pay the monthly installments. Without a steady monthly income, you might not be able to meet the monthly payments on your credit card, which can lead to missed payments and damage your credit record.
Opening Multiple Credit Cards at Once
Opening multiple credit cards in a short time frame often risks overspending, which can lead to an unmanageable balance and late payments. In addition to putting you at risk for overspending, opening multiple credit cards at once is a red flag for lenders as it appears that you are desperately seeking credit. Credit inquiries account for 10% of your credit record, and each time you apply for a credit card, you will receive a hard inquiry, which will slightly lower your score.
Ignoring Your Credit Card Payments
It does not matter if you forget to pay, cannot afford the payment, or intentionally miss your monthly credit card payments; your credit record will be affected in any case. After 30 days, your late credit card payment is reported to credit bureaus, and after six months, your account is considered delinquent. Since payment history is the biggest factor affecting your credit record, late payments can cause significant damage.
Ignoring Outstanding Bills
If you ignore an outstanding bill for any reason, the company will undoubtedly come after you for payment. They will contact you and send you letters for a few months in an attempt to catch up on payments. If that fails, they will turn to debt collection agencies. Once a debt collector takes over the account, they will add the delinquency to your credit report, which will affect your credit record and your ability to get approved for future applications.
Allowing an Irresponsible Person to Use Your Credit Card
Unless someone steals your credit card, you are responsible for any purchases made with it. So, if you allow your little sister to use your card to buy pizza, and she maxes out the card buying clothes and shoes, you are liable for the balance, whether you can afford it or not. The same applies to adding authorized users to your account as well. If they are going to get a physical credit card, make sure they are responsible users.
Signature
As a Guarantor for an Irresponsible Person
Signing as a guarantor for a credit card or loan often seems like the right choice at the time. You want to help someone you care about, but you put a lot at stake for that person. Often, the person you signed for as a guarantor behaves irresponsibly and fails to make payments, leaving your credit record in disarray. Remember that signing as a guarantor means you accept responsibility if the other person does not pay. You should be prepared to step in and make payments if you want to protect your credit record.
Failing to Protect Your Sensitive Personal Information
Many people become victims of identity theft because someone they know and trust opened accounts in their name. Keep your personal information secure to prevent anyone from accessing your accounts or opening new accounts in your name. This personal information includes your bank account, credit card numbers, and especially your social security number.
Conclusion
Once you ruin your credit record, it takes a long time and timely payments to obtain a better credit record. Mistakes you’ve made will follow you for at least seven years (10 years in the case of bankruptcy), but fortunately, they won’t look as bad if you change your bad habits and start being responsible for your credit.
Source: https://www.thebalancemoney.com/how-to-ruin-your-credit-960532
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