“How To Raise My Credit Score – 4 Financial Actions to Avoid” explains how some specific financial decisions we make can either lower or raise our credit score. Moreover, the higher your score is, the more points you can lose by, for example, paying highest credit score possible a bill late. We all know how important credit is in our everyday lives, but what’s even more important is to learn how to guard it and make every possible effort to boost it and make sure it stays up.
4 Financial Actions To Avoid
An article in MSN Money by Liz Pulliam Weston shows how the higher your score is, the more points you can lose for any negative financial action you take, such as maxing out your credit card. For example, while someone with a score of 680 could lose up to 150 points by declaring bankruptcy, someone with a score of 780 could lose up to 240!
Two different credit scores were chosen to figure out how much each financial action you take affects your credit: a score of 780 and a score of 680.The results shown correspond to each credit score previously mentioned.
1) Maxing Out Your Credit Card: -45 / -30
Going over your available line of credit can lower your score as much as 45 points if you have a score of 780. If your score is around 680, maxing out your credit card could cost you up to 30 points.
2) Making A Late Payment: -110/ -80
If you’re a month late on your payment, it can lower your score a lot, especially if it’s high. While being late on a payment can drop your score of 680 up to 80 points, it could actually lower a credit score of 780 up to 110 points!
3) Foreclosure: -160 / -105
Foreclosure could not only cost you your home, but it could also hurt your credit score. Thus, you should do everything you can to prevent foreclosure.
4) Declaring Bankruptcy: -240 / -150
As we all know, bankruptcy is an abrupt financial option to get a “fresh start” and eliminate your debt. Nonetheless, due to the new bankruptcy law, filing has become more expensive and complex. For instance, fewer consumers will be able to file under Chapter 7 and more will have to file under Chapter 13 and, as a result, be placed on a repayment plan. Bankruptcy is such a major financial move that it can lower a score of 780 up to 240 points, and a score of 680 up to 150 points.
4 Financial Actions To Take
According to FICO, the following financial actions could help you boost your credit score and help you keep your finances under control.
1) Keep Your Debt-To-Credit Ratio Low
Creditors would rather do business with consumers with a debt-to-credit ratio below 30%. To them, this portrays a responsible financial consumer since, instead of borrowing all the money he can, he chooses to use only a small portion of it. If you’re close to going over your available line of credit, don’t worry. Just take measures to lower it. Keep in mind that as long as you fix a financial mistake you make, as the months go by, your score will eventually improve.
2) If You Go Over Your Limit, Pay It Off ASAP
Yes, going over your limit will lower your score, but paying your bill and lowering your debt-to-credit ratio will help you boost it. So no matter how badly you’re managing your credit cards, there’s almost always hope to do a better job and help your score bounce back! If you can afford to pay a chunk of your credit card bill and lower your debt-to-credit ratio, do it. If not, at least try not to go over your available line of credit.
3) Pay Your Bills On Time
If you’re making your monthly payments on time and your debt is diversified (credit cards, mortgage payments, car loans), your credit score will most likely improve. Try to keep up the hard work and stay on top of your finances.
4) Make Steady Payments For Several Months In A Row
If you fall behind on a payment, don’t despair. Just try to pay it ASAP and not to miss it again. After several months of making your payments on time, such as after a year, your credit score will tend to go up. Also, try not to open too many new accounts and keep projecting an image of financial responsibility.
There’s Always Room For Improvement
Hopefully “How To Raise My Credit Score – 4 Financial Actions to Avoid” has helped you realize how badly some financial actions you take hurt your credit score. Once again, life can be pretty tough at times, and sometimes an emergency occurs and we may need to max out a credit card. But if you’re managing your debt pretty well, I advise you to do everything you can to follow the previous tips. You’ll reap the rewards of using your credit card responsibly.