A few bad decisions can ruin your credit score, and it could take years of hard work in order to get it back. Many people understand how important good credit is for major life purchases like a house or a car, but few realize the small decisions that can drive a score downward and ruin the chances of a solid financial future. Here are some guaranteed ways to ruin your credit through a credit card. Hopefully, these aren’t mistakes you have already made.
1. Applying for Credit Too Early
The minimum age you can open a credit card is 18, but this shouldn’t be seen as an express permission to go and get a line of credit. For starters, you should never build your lifestyle on credit. If you plan to use a new card to fund your social nights or your designer clothing line, you are setting yourself up for a lifetime of failure. Apply for credit once you have mastered the basics of personal finances. These include living within your means, meeting deadlines for payments or other tasks and having strong money management skills.
2. Applying for Credit Without a Job
You will need a source of income to be approved for a credit card, but if you only work part-time or tend to leave jobs rather suddenly, you may not be able to handle the income demands to pay your credit card bill. Different lenders have different requirements when approving card applications, but many of them will look at credit scores and income. However, they may not look at job history to support the income claims. This could lead you to be approved for a line of credit that you do not have the financial resources to support.
3. Failing To Honor the Contract
Having extended purchasing power can be exciting, but ignoring the contract terms for the credit you’ve been granted can ruin your credit before you’ve had time to enjoy all your purchases. Always pay your credit card payment on time. Late payments will affect your score, just as will partial payments. Your lender will have a specified minimum amount due and a due date. These are not suggestions. Failing to honor this part of the lending contract leads to fees and negative hits on your credit report. Too many occurrences and your credit line can be canceled.
4. Mishandling Your Credit Line
There is a limit attached to your credit line, and this is the maximum amount of funds that the lender is extending to you. By continually making purchases that eat away at your available funds, you demonstrate purchasing behaviors that can be troubling to future credit needs. Your credit report and creditworthiness are assessed according to a debt to income ratio, and the higher the dollar amount of the debt you have, the lower your credit score may go if you don’t have enough income. Keeping a high balance on your credit puts a negative hit on your credit report.
5. Applying for Too Many Cards
Once you have been approved for one card, you start to build your credit history. If you have a clean credit record, you may receive additional offers from other lenders. However, opening several new cards or applying for several cards at one time indicates to lenders that you are desperate for credit. Too many cards means too many balances and payments that you may no be able to afford. Lenders don’t want this risk, and each inquiry puts a mark on your credit report.
These are simple mistakes that you can avoid as you build your credit history. Be patient and protective with your credit, as it can take a lifetime to build and one decision to ruin.
WRITTEN BYSerena K. Johnson