As more and more people are becoming aware of the importance of maintaining a good credit score, they are also learning about the factors that can negatively impact their creditworthiness. While many people are aware of the commonly known factors such as missed payments, high credit utilization, and collections, there are several lesser-known factors that can also ruin your credit score.
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While using a credit card can be beneficial, it’s crucial to be aware of the potential pitfalls that could harm your credit score. As a credit card apply app user, you must avoid using your credit card for cash advances, missing payment due dates, applying for loans or credit cards too frequently, not updating your personal information, and using a credit card for large purchases. By being mindful of these factors and taking appropriate steps to avoid them, you can maintain a good credit score and enjoy the many benefits of using credit cards. In this article, we will explore these factors in detail and provide tips on how to avoid them.
Applying for Too Many Credit Cards
While having multiple credit cards can be beneficial for building credit and earning rewards, it can also hurt your credit score if you apply for too many cards within a short period. Each time you apply for a credit card, the creditor makes a hard inquiry on your credit report. These inquiries remain on your credit report for up to two years and can lower your credit score by a few points. Therefore, it is essential to be selective when applying for credit cards and limit your applications to only those that you need.
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Closing a Credit Card Account
Closing a credit card account may seem like a smart move to reduce the temptation of overspending, but it can also negatively impact your credit score. When you close a credit card account, it reduces your total available credit limit, which increases your credit utilization ratio. Your credit utilization ratio is the amount of credit you are using compared to your total available credit limit, and it accounts for 30% of your credit score. Therefore, it is best to keep your credit card accounts open, even if you are not using them frequently, to maintain a low credit utilization ratio.
Using Your Credit Card for Cash Advances
While credit cards offer the convenience of cash advances, they come with high fees and interest rates. Using your credit card for cash advances can not only increase your debt but can also negatively impact your credit score. Cash advances are considered high-risk transactions, and credit card issuers report them differently on your credit report, which can affect your credit score. Moreover, cash advances are not considered as credit card purchases, so they do not earn rewards points, which can also be a disadvantage. Therefore, it is best to avoid using your credit card for cash advances and opt for other options such as personal loans or savings.
Ignoring Your Payment Due Dates
Missing a payment due date on your credit card or loan can have a significant impact on your credit score. Payment history is the most critical factor that determines your credit score, and even a single missed payment can lower your score by several points. Additionally, creditors report late payments to credit bureaus, which remain on your credit report for up to seven years, affecting your creditworthiness. Therefore, it is essential to make your payments on time and set up automatic payments or reminders to avoid missing any payments.
Applying for Loans or Credit Cards Too Frequently
Apart from applying for too many credit cards, applying for loans or credit cards too frequently can also hurt your credit score. Each time you apply for credit, the creditor makes a hard inquiry on your credit report, which remains on your credit report for up to two years. Multiple hard inquiries within a short period can indicate that you are a high-risk borrower, which can lower your credit score. Therefore, it is best to limit your credit applications and only apply when you need credit.
Not Using Your Credit Cards
While using your credit cards excessively can be detrimental to your credit score, not using them at all can also hurt your creditworthiness. If you have a credit card account that you have not used in a long time, the issuer may close the account due to inactivity. When a credit card account is closed, it reduces your available credit limit, which, as mentioned earlier, can increase your credit utilization ratio. Therefore, it is best to use all your credit cards occasionally to keep the accounts active and maintain a healthy credit utilization ratio.
Not Checking Your Credit Report Regularly
Your credit report is a detailed summary of your credit history and plays a crucial role in determining your credit score. Errors or inaccuracies in your credit report can hurt your credit score, and you may not even know about it until you get denied for credit. Therefore, it is essential to check your credit report regularly for errors and address them promptly. You can obtain a free copy of your credit report once a year from each of the three major credit bureaus.
Co-signing for Someone Else
Co-signing for a loan or a credit card for someone else may seem like a noble gesture, but it can have severe consequences for your credit score. When you co-sign for someone, you become equally responsible for repaying the debt. If the other person fails to make payments on time, it can hurt your credit score, and you may be held liable for the debt. Therefore, it is best to avoid co-signing for others, especially if you are not confident about their ability to repay the debt.
Conclusion
In conclusion, a good credit score is essential for obtaining loans, credit cards, and other financial products. As a credit card apply app user, you must be aware of the factors that can negatively impact your credit score, including using your credit card for cash advances, missing payment due dates, applying for loans or credit cards too frequently, not updating your personal information, and using a credit card for large purchases. By avoiding these mistakes and practicing good credit habits, such as paying your bills on time and keeping your credit utilization low, you can maintain a healthy credit score and achieve your financial goals. Remember, a good credit score is an asset that can provide you with financial opportunities for years to come.