5 Financial Moves That Can Negatively Impact Your Credit Score

Building a good credit score is important for financial success. You’ll need a strong credit rating to secure loans for long-term purchases like a car or a home. The majority of credit scores fall between 301 and 850 with the following ranking:

• Excellent: 781-850
• Good: 661-780
• Fair: 601-660
• Poor: 501-600
• Bad: below 500

Although most people’s scores vary over time for many reasons, it is important to try and keep your credit score as high as possible so that when you need credit (to buy a home, for example), you’ll be able to get it at a reasonable rate. To protect your rating, avoid the five following financial activities:

Skipped Payments or Late Payments.

While it’s not unusual to miss an occasional payment, doing so consistently sends a bad message to prospective lenders who view your credit history. When deciding whether to give you new or additional credit, they will check to see if you keep up with current credit payments. Frequently missing payments or making routine late payments raises a red flag. If you must miss a payment or be late, contact the lender to explain why. Chances are any penalties may be waived, including a ding to your credit rating.

Overextended Credit

When exciting credit card offers overflow your mailbox, resist temptation to accept them all. Carefully review all offers’ fine print and compare them to get the best offer. Opening too many credit lines at the same time can make you appear vulnerable to overspending.

Cosigning a Loan

Your intentions are undoubtedly good when cosigning for a friend’s credit purchase. However, your own credit rating hinges on the other person’s ability or commitment to pay bills on time. When a slip-up occurs, you will be held financially responsible, and your credit rating may suffer as a result.

Switching Credit Cards Too Often

It’s hard to pass up a great credit offer, especially one with extended 0% interest and no balance transfer fee. But switching from one account to another too quickly can make you appear financially unstable. Potential creditors may wonder about your ability to actually pay off those transferred balances along with your willingness to make payments when the introductory interest rate expires. Each credit application impacts your credit score, so avoid doing it too often.

Not Reviewing Your Credit History Annually

Everyone should check their credit rating at least once a year by requesting a free credit history report from the three main credit bureaus: Experian, Equifax, and TransUnion. All the scores are slightly different, and they can be obtained for free (yes, really free) from AnnualCreditReport.com.

• Experian uses the PLUS Score to explain credit scores, along with impact factors and ways to improve scores.
• Equifax scores range between 280 and 850 to predict credit risks.
• TransUnion’s TransRisk is a consumer credit score resembling the Fair Isaac Corporation (FICO) score, ranging between 300 and 850.

Organizations like Credit Karma offers free Web-based credit and financial management to American consumers. It offers free updated weekly credit scores and reports.

With a wealth of financial resources like these widely available, make time to review your financial standing by getting a copy of your credit score and ensuring all information is accurate and updated. Lenders will be ready to review your application favorably when you establish and maintain a strong credit rating.