Getting a mortgage, credit card or an auto loan with a mediocre credit history has become a thing of past. If you want to get best rates on your credit cards, home loan or car loans, then you should have excellent credit score. The FICO scores help the lenders/banks to judge your creditworthiness. So, you should always take steps to enhance your credit score and avoid doing things which may destroy it.
Let's take a look at 5 things to avoid and save your credit from taking a hit:
1. Applying for credit: Your lender/creditor will check your credit report once you apply for new credit. This credit inquiry will be mentioned in your credit report. It should be noted that 2 or more inquiries within two months will negatively affect your credit score. Thus, applying for too much of credit can be harmful for your credit score.
2. Late payments: Any late payment will be mentioned in your credit report for the next 7 years as a negative item and will reduce your credit score by 80-110 points. Try to pay off the credit card bills, mortgage payments, car loans, etc., on time or within the grace period. If you don't do so, you are at a risk of damaging your credit scores.
3. Inadequate credit: While calculating your credit score, the credit bureaus take into account as to how long and how much credit you had. If you have 2-3 credit cards, 1 mortgage and a car loan and have paid them faithfully, then your credit score would be much higher than that of a person who has a single credit card and 1 auto loan.
4. Opening a new credit line: As you apply for a new account, you actually lose some points off your credit score. When you open a new account, the bank or the credit card company will check out your credit report and such inquires are generally hard inquiries (inquiries which take place when a person is applying for a car loan, mortgage or a credit card). Such inquiries will lower your score by around 5 points. Apart from this, opening a new account will lower your score by 5-15 points. However, this is a temporary ding and may last for around 6 months.
5. Maxed out on credit cards: If you've reached the maximum limits on all your revolving credit accounts, then your credit score will get negatively affected. You should try and pay off your credit cards completely every month.