In a previous article, I discussed the importance of having a healthy credit score. Let’s look at some ways that you can actually harm your score, thus diminishing your chances of obtaining a loan for a major purchase.
Valerie RumboughFirst, having a high debt to available credit ratio. This means that you have borrowed almost the maximum available to you. This ratio alone accounts for almost 1/3 of your score.
Second, opening a new credit line. Each time a potential lenders checks your credit score, it lowers your credit a few points. However, this doesn’t last but a few months.
Third, closing a credit line. This effectively raises the debt ratio mentioned earlier. The best thing to do may be to leave the account open, but cut up the credit card to avoid the temptation of using it.
Fourth, making late payments. This causes a significant drop in your score, even if it is only one payment that is just 30 days late.
Fifth, and the biggest score killer, is defaulting on a loan. A foreclosure can cost you up to 200 points, and defaulting on other loans can be just as devastating.
If your score is lower than you would like it to be, don’t lose hope. Making payments on time, keeping your credit balance low, and working toward paying balances off early will slowly build your credit score to where it needs to be.
As I mentioned previously, your credit score is ultimately a reflection of your Christian character. Let’s all do the best we can to look like our Lord.
– Rumbough, CPA, CFP, is chief operations officer with the Baptist Foundation of South Carolina. Contact her at 800-723-7242. In accordance with IRS Circular 230, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.