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The 5 Mistakes You're Making that Ruin Your Credit Rating

Author: JasonLancaster
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Word Count: 607
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Protecting your credit rating isn't easy. Credit cards, auto loans, home equity loans and our suspect health insurance system can ruin your credit score. From easiest to hardest, here are the dangers you need to look out for:

1. Credit card closure:

Closing a credit card account lowers the amount of credit you have available, obviously. What's not as obvious is the effect this has on your credit rating, which can plummet as much as 100 points in only 2 months as a result of closing a credit account. Why? Because one of the most important factors in calculating credit score is your "percentage of credit available", and decreasing your available credit drops this score. Try to keep as much available credit as possible by using your card at least once a year on a small purchase to keep your account active. And remember, unless your card has an annual fee, do NOT cancel it!

2. Maxing out your credit cards:

That's right, aside from cancelling your credit cards, using them too much is the easiest way to ruin your credit. Banks like to see credit cards with a high limit, but with little or no balance. These "open" cards indicate a responsible and disciplined consumer. However, if your cards are maxed-out, you're giving banks the impression that you're living beyond your means, and your credit score is going to drop. The easiest fix here is to apply for more credit cards and to request a higher limit on the cards you have. Just make sure you don't use this new credit -- otherwise you're just making your problem worse.

3. Health Insurance Mix-ups

Imagine this scenario: your doctor sends you a bill and you send it to your insurance company, thinking your policy covers it. Turns out, it doesn't, and the company doesn't pay your bill. So the doctor's office turns the unpaid debt over to collections, wreaking havoc on your credit score. Sound scary? It's a lot more common than you might think! Make sure this doesn't happen to you by paying close attention to all your bills, and double-checking with both your doctor's office and health insurance company to make sure every bill is paid. Sure, it might take some time, but the 50 points you'll save on your credit rating will be worth it.

4. Co-signing Gone Wrong

We've all been asked to co-sign a loan by a friend or relative, and while this can be a great way to help someone close to you, it can also result in your credit being ruined. It's very important that you consider the following before co-signing -- YOU are responsible for whatever happens. That means if the person you co-signed for doesn't make the payments, you're expected to. If they file for bankruptcy and include your co-signed loan, the bankruptcy will show on your credit report (even though you haven't filed). Finally, even if you have PROOF that the other person is responsible (i.e. a divorce decree, a statement from that person, etc.) your credit will still be affected by anything they do (or don't do). My advice -- don't co-sign for anyone unless you can afford to make the payment yourself.

5. Paying Bills Late

"Hey, my bills are getting paid. What's the harm if they're a little bit late?" Turns out, paying late can ruin an otherwise perfect credit score. Make sure your bills are paid on time by inquiring about and enrolling in your bank's automatic bill payment program. Your bank will automatically send your creditors a payment from your account every month, so you don't risk forgetting due dates, which can damage your credit rating and cost you hefty late fees.