Credit health is very similar to your personal health. The better you take care of it, the more you get to enjoy the benefits it brings. Just like how eating balanced meals every day as well as getting adequate exercise can make your mind and body strong. The same can be said with your credit and finances. The more you take care of it, the bigger your chances of reaping rewards.
The more you improve your finances, the better your credit health would be. It follows that as you take care of your credit, lenders tend to offer you better rates and terms when you take out loans and other financial tools. This can take the form of a pre-approval on loan applications as well as being given low-interest rates.
The good news is that according to Foxbusiness.com, the average credit score for Americans stands at about 700. Getting to a pretty high score is not the end of your financial goal. This is because as you get there, you need to find a way to maintain that. Apart from the good habits that you need to practice, you need to be aware as well of the negative ones affecting your credit.
Here are some of these habits that can ruin your credit health. It is best to have an idea what these are so you can steer clear away from them in the future.
Late bill payments
Credit health is most affected by how you approach your payment obligations. One of the most damaging things you can do is to send in late payments. Simply put, your payments are being received by your lender past the due date. If your payment due date is every 15th of the month, your payments are coming in from the 16th onwards.
There are a few things you can do to help you stay on top of your payments. For one, you need to understand why your payments are being received after the due date. If you are having problems juggling several debt payments, your credit health would benefit from a debt consolidation. This would effectively cut down the payment details you are managing including that due date.
It is also a good idea to look at your method of payment. If you are still making payment by cutting out and mailing checks, you need to factor in turnaround time for payment delivery. This is especially true if you are sending out payments close to the due date. Consider online payments as they are credited almost instantly.
Know if you have a grace period as well. This can help you get enough elbow room in your calendar in terms of sending out payments. If you are receiving your bills late or close to the due date, inquire about paperless billing. At this day and age, you can readily receive monthly statements through your e-mail. This can help you pay faster as well as file your statements and payments better.
Not sending out payments
As you take care of your credit health, one thing that has an adverse effect on it would be foregoing payments entirely on your debt obligations. You need to understand that debt is not the problem. Debt problems start to manifest when you are running behind or completely holding back payments on your accounts.
There are times when you find yourself in a really tough financial situation and making payments become tough. This is a lot more difficult when you do not have any type of reserve funds to speak of. You then have to rely on taking in more debt just to get out of an emergency. Once everything is done and over with, you end up with a bigger payment amount because of the additional debt you took out.
Your credit health takes a significant nosedive when you do not make payments on your debt obligations. This would reflect on your credit report and would then ding your credit score making it go down. You need to be proactive in these situations and talk to your lenders about it before it happens. This way, you can make payment arrangements with your lenders while you are in distress and resume back when everything has settled.
Maxing out your card
There are a lot of people who would have different takes in maxing out credit cards. For some, it is a necessity while for others, an unfortunate and unavoidable incident. Either way, working with a maxed out card damages your credit health on two fronts – credit utilization ratio and dealing with penalties and interest on late payments.
Thestoryexchange.org shares how one mother was able to launch a thriving business with the help of family and friends and maxed out credit cards. This story is not that much different with some start-ups. The problem with this is that as you work with a maxed out card, your credit utilization ratio goes up. This tends to be a negative score on your report and can affect your credit score making it go down.
If you are maxing out your credit cards because of financial difficulties, there is a good chance that you would be having problems paying them all off at the end of the month. If this is the case, you can just imagine the amount of penalties and interest and fees that will be added on. Your next month’s billing would surely balloon up making it more difficult for you to pay off your card.
When you are faced with financial problems, you can protect your credit health by not making your credit card a top priority in raising funds. One thing you can do is to beef up your reserve funds to make it more dependable. The bigger it is, the better it can help you weather various financial problems.
Cosigning can affect credit health
This is one of those requests from family and friends that you have to really think through. Cosigning a loan is similar to handing them over your credit score and giving them the liberty to apply for a loan. Of course, most couples would do this to be able to afford big ticket items. However, it is different when other family members and friends start to ask you to sign over for a loan.
According to Time.com, you assume responsibility for a loan once you cosign on it regardless if the other party dies. When they do, you then have to take up and continue on with the payment. The same goes when they miss their payment schedule, your credit health is affected because it will show up on your credit report.
When you are asked to cosign a loan by a close family relative or a friend, you need to take your long-term goals in consideration. If you need your score to be at a certain level in a few years for a big ticket purchase, you might have to decline. It might be better to offer them some form of cash assistance than putting your credit at risk.
Taking out too much credit cards at once
One of the financial pitfalls consumers often make is taking out multiple credit cards at once. You need to understand that for every loan or credit application, lenders perform a hard pull on your score. This pulls your credit down a bit but applying for multiple credits at the same time could have a significant effect on your credit report.
Your credit health is one of the most crucial items you need to take care of. It can help you reach you long term goals when you use it wisely.