A healthy credit score is of paramount importance if you want to be eligible for future loans. Sustaining a decent credit score is not a far fetched delusion given you manage your finances astutely. Many things can hurt your credit, therefore, handle your credit responsibly and keep it at an ideal level. A few simple mistakes can ruin the possibility of acquiring future credit and greatly harm your financial history.
A few credit score slayers are hard to dodge such as defaulting a mortgage payment because of joblessness or reaching the limit on your credit cards because you are flooded with medical bills. However, numerous credit gaffes are merely due to inattention and can easily be eluded.
Credit Mistakes that Hurt Credit and Financial History
Defaulting on your Bill Payments
If you are uninformed of payment deadlines or unintentionally default on a payment, it can significantly hamper your credit score. Even if you are not reported by the bank to the IRS, it will charge you a substantial penalty that can really hurt your financial history.
Similarly, late credit card expenses can cost you heavy fines. Therefore, it is vital for you to make the due payments within the given time period. To avoid mistakes that can hurt your credit, use automated payment plans offered by banks and other institutions. This will ensure that the minimum amount is paid within the due date and you will have enough time to make the remaining payment.
Failure to Rank Payments According to their Significance
Prioritizing your debt payments is an indispensable component of maintaining a praiseworthy credit score. Most people typically rank their larger loan payments, such as personal loans and mortgages, over their credit card loans, which is the right thing to do. Nonpayment of bigger loans can cause grave concerns for your financial history than simply defaulting on a credit card payment.
Failing to pay your credit card payment will cost you only 1%-2% of the balance. However, do not take this rule for granted. Contingent on the payment amount, you must prioritize the payments. Some credit card payments should be paid off right away as they are compounded and, if you let them grow for a while, they will come back to hurt your credit pretty badly. Therefore, rank your payments according to the severity of the situation.
Not Checking Credit Report Regularly
Scrutinizing your reports for inconsistencies can seem to be a wearisome task, but it should be performed regularly. There is always a chance of having an item on your report that is charged by mistake or that someone is misusing your credit card information. Checking your credit report regularly will ensure that you find these errors and report them before you miss the deadline and nothing can be done.
You have up to 60 days to dispute these charges and, once the time limit is exceeded, there is no other way. Nevertheless, charges connected to deceitful actions might permit you an extended duration to dispute a charge. Failure to check your credit report can hurt your credit as well as dampen your financial history significantly.
Terminating Old Credit Card Accounts
You may be tempted to close an old credit card account that has not been used in years. However, unless there is a high annual fee associated with it, it might not be the best course of action. Closing an old credit card account will ominously hurt your credit, which will eventually mean that you become eligible for a lesser credit. Chiefly, it disturbs your credit utilization ratio that is an important element of measuring your credit score.
Terminating your oldest accounts with a financial history of on-time payments can hurt your credit, rather than improve it. Lenders like to see credit accounts that have a solid payment reputation and finishing the account would mean that it is ultimately written off. Instead of influencing your score positively, it makes a major dent in it.
Paying your Tax Bill with a Credit Card
If you don’t pay your federal taxes, the IRS has the authority to levy all of your assets, seize tax refunds, or put a lien against your owned properties. Even with all of those potential hazards, you must never be convinced to pay off the tax via your credit card. There is an interchange fee that has to be paid if you choose this option. The percentage ranges from about 2% to 4% of the total payable amount. Adding that to, an additional 12% – 18% has to be paid to the bank and you will end up with a mind-boggling figure. If unpaid, it will hurt your credit and financial history. Work out a plan with the IRS if you are in this situation and set a payment plan that is adjusted to your needs.
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