Simple Mistakes That Can Hurt Your Credit

Have you ever forgotten to pay a bill? Bounced a check? Believe it or not, simple everyday mistakes with your finances can affect your credit score. Read on for a few things that you might want to think twice about.

Bouncing a Check:  This will come as a surprise to many, but a bounced check may actually affect your credit score at some point.  And that is the key phrase:  At some point.   Just because your bank doesn’t send a report to the credit bureaus every month, doesn’t mean that it can’t or won’t do so, especially if you don’t pay it back promptly!  Failing to cover a bounced check can result in collection, civil, and even criminal charges – both from your bank and/or from the company that you paid with the check.

Too Many Credit Inquiries:  Whenever you apply for any type of credit card or loan, the potential lender performs an analysis known as a ‘Hard Credit’ inquiry so that they can review your complete credit report, determine your FICO credit score, and decide whether or not to extend credit to you.  Applying too frequently for any loan or new credit card can and will affect your credit score as the financial risk to potential lenders increases as your score drops, and statistical analysis has proved that having numerous new credit cards in a short time span is a bad indicator of an individual’s financial responsibility.

Late Payments:  Late payments can indicate unreliability, lack of funds, and irresponsibility in an individual.  And, since your payment history accounts for 35% of your credit score, one late payment can cause your score to drop significantly, especially if you are more than 30 days past due on the payment.  

Co-Signing a Loan:  Before co-signing any loan for a member of your family or a trusted friend, you will want to consider the effect that your involvement in another person’s finances could have on your own financial picture.  Co-signing for a credit with a very high balance could affect your utilization ratio, consequently causing a drop in your credit score.  And of course, as a guarantor, you take up the responsibility of ensuring full settlement of the loan by the borrower in accordance to the stated terms. A default or inconsistent loan servicing by the borrower lowers your credit score.

Remember, the benefits of good credit far outweigh the effort that it takes to build and maintain a good credit score, so take care to ensure that you don’t let a simple, little mistake ruin all your hard work!