The 5 Worst Ways to Use Credit

When it comes to your financial security, your credit score is one of the most influential assets you have. Good credit is essential to achieving your long-term goals and misusing it could spell disaster. Here are five of the worst possible ways to utilize this important resource.

Quick Read:
Bad credit scores come from consistent or drastic misuse of your credit. Failing to pay credit cards and loans are at the top of this list. Neglecting to diversify your credit sources, as well as other credit card misuses, also contribute to tanking your credit rating. Keep reading to learn more about how to never use your credit.

These Five Credit Mistakes Could Cost You Your Credit Future

Paying Late or Not at All

Your payment history determines nearly one-third of your credit score. Using your credit as a “safety net” to extend billing cycles or delay paying off major purchases is extremely detrimental to your credit rating. Not paying your credit card at all is even worse. Neglecting your payments, or avoiding them entirely, is guaranteed to tank your rating.

Defaulting on a Loan

Your credit provider will charge-off credit cards when you fail to pay the remaining balance. Defaulting on loans has similar penalties as not paying off a credit card, though on a greater scale. Failure to fulfill your side of the loan contract shows your creditor you’re unreliable and a financial liability.

Not Diversifying Your Credit

Having mixed sources of credit accounts for 10 percent of your total credit rating. If you only have credit cards or loans, you could hurt your rating. This is particularly an issue for consumers with little or no credit history. Try to apply for another source of credit if you already have one.

Closing Credit Cards

You don’t need to keep every credit card account you have open. However, closing certain cards can hurt your credit score. The length of your credit history accounts for 15 percent of your score, so keep an eye on your oldest accounts. You should keep your oldest card open, even if you never use it, especially if there’s no annual fee on it.

Closing a credit card with an existing balance can be detrimental to your credit rating. It could lower your credit limit to zero without reducing your current balance. It will then appear as though you’ve maxed out your credit, which lowers your credit rating. Pay off any remaining balance before closing a card to avoid tanking your score.

Maxing Out Credit Cards

Pushing your credit card balance to its monthly limit can also hurt your credit score. Going over your limit puts you at risk for over-limit fees and interest rate penalties. The general rule of thumb is to keep your balance between 10 to 30 percent of your credit limit to avoid any damage to your credit rating.

If you use it responsibly, credit can lead to valuable opportunities. Try to think of your credit as the slow turtle that will get you to your destination in the long run. You’ll win the race and avoid financial disaster, if you use it slowly and wisely.