Many of the most seriousissues of life can be presented in such a boring way, so often that the message falls on deaf ears and the relevance to our personal lives is missed. Consider the number of articles and news stories online and in print about how and why Americans need to invest for retirement and increase their personal savings. Even with all that prodding, more than 25 percent of Americans have nothing put away for a rainy day and the number of Americans without a retirement fund is nearly 34 percent. Are you taking the management of credit seriously?
In the same way, the mundane topic of credit and the impact it has on personal finance is easily discounted, leaving many people in financial trouble because of mismanaged credit accounts. Understanding how credit works may seem unimportant or too tedious to bother learning, but neglect this important issue and you may be denied credit for some of life’s most basics, like buying a car or home, or jeopardize a new employment opportunity.
The concept of establishing credit is as simple as demonstrating your ability to borrow and repay a loan or line of credit over time. Handle credit responsibly and you’ll earn good credit scores, which are established by the three major credit agencies, Experian, TransUnion and Equifax. If you fail to exhibit responsible money management skills, you’ll receive a poor credit score and end up paying more in interest for the privilege of borrowing in the future.
In an attempt to present this important issue in a new light and to avoid the monotony of the typical to-do type list to establish or improve your credit, we’re coming at it from a different direction. With tongue firmly planted in cheek, here are ten easy steps to take to destroy your credit (don’t do it!):
- Open a bunch of new credit accounts!
The more applications you submit the more desperate you will appear and the quicker your score will drop. Every time you open or apply for a new account, an inquiry is added to your credit report, each having a small impact on your score; multiple inquiries in a short period of time will have a greater impact. Generally, you’ll see a 5 point drop for each inquiry.
- Max out your credit cards!
High card balances pay for the good life. Using more than 30% of your limit shows little self-control and will lower your score. Roughly one third of your score is based on the ratio of credit card debt to credit limit.
- Don’t pay your bills on time!
Delinquent payments will demonstrate your irresponsible money management skills and could drop your credit score by 100 points or more.
- Close credit card accounts you don’t use, especially older ones!
When you close an account, the credit limit will no longer be included in your credit reports resulting in a reduction in your credit utilization ratio. In other words, you will be using a larger percentage of your available credit once you close any accounts. Closing old accounts when you open a new one will cut off records of a lengthy credit history, which are helpful in maintaining a higher score.
- Stop paying your mortgage!
Skipping out on a mortgage is the quickest way to see your credit score take a dive. Enjoy the liberation that comes from walking away from a home that is now worth less than what you paid. Foreclosure may drop your score over 150 points. Ouch!
- Co-sign for a risky family member or friend.
Your score will be negatively affected by every irresponsible move the original borrower makes, i.e., late payments, defaulting, etc. Adding insult to injury, you’ll be held responsible to repay the loan.
- Open store-branded credit cards.
Enjoy the immediate gratification of saving 10 percent on purchases made when you open the account. Open multiple lines with different retail stores in a short period of time. Retail credit cards not only come with low credit limits in most cases, which can have a negative effect on overall credit utilization, but your credit scores will also take a hit every time you apply with an inquiry appearing on your credit reports.
- Neglect paying traffic tickets and library fines.
The amount you owe is only a small sum, but neglect paying and it may be turned over to a collection agency and see your score drop by 100 points or more.
- Buy everything with cash!
Who needs credit cards? Fail to demonstrate your ability to pay on credit by making all your purchases with cash and don’t even begin to establish a score – zilch, zero, nada.
- Stick it to your creditors by filing for bankruptcy.
It’s only 10 years of damage to your credit score.
These surefire ways to bring down your credit score can be combined to do the most damage. Utilizing one or two of these tips may not have a negative impact at first, but over time you will slowly see your score drop, if you continue to practice them.
Noreen Ruth is a regular contributor to a variety of quality financial-related blogs and websites. Discover more of her articles and additional info on credit, finance and cards for people with bad credit at www.asapcreditcard.com. She specializes in credit and debt-related issues and enjoys educating consumers about the latest rules and regulations, as well as ways to build, improve and maintain good credit.