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Your credit score is a very important part of your financial future, affecting a number of different areas of your life.  A bad credit score from excessive balance transfers or otherwise can affect your ability to obtain a home loan, a car loan, an apartment, even a job.  There are several things that will definitely destroy your credit score and these actions should be avoided at all costs.

Credit Score Killer #1 – Late Payments On Your Credit Cards

Information about your credit card accounts is the easiest information for the credit bureaus to obtain and is the information most likely to affect your credit score.  If you regularly miss payments on your credit card accounts, that information is being reported to the credit bureaus each time and each time your total credit score is being decreased by a significant amount.  If you miss several credit card payments on several different credit card accounts, your score could decrease by 100 points or more in a relatively short period of time and it may take years to rebuild your credit score to its previous level.

Credit Score Killer #2 – Canceling Old Credit Cards

An important part of your credit score is the length of your credit history, which is often calculated by how long you have held your credit card accounts.  Canceling your oldest credit card, even if you have not used it in a while and do not intend to use it in the future, reduces the length of time listed in your credit history and can drop your credit score by a large amount.

Credit Score Killer #3 – Maxing Out Your Credit Limit

The amount of your available credit that you are using at any given time is another credit criteria used by the major credit bureaus in calculating your credit score.  If you are using close to your total amount of credit available, credit bureaus determine that you are not using your credit wisely which in turn causes them to drop your credit score because you are now a credit risk in the eyes of the lenders.  To keep your credit score high, you should be using no more than 50% of your available credit on each of your credit card accounts.

Credit Score Killer #4 – Opening Numerous Credit Accounts

Each time your credit score is pulled to determine your qualification for a new credit account, the credit bureaus reduce your credit score by 5 points.  Opening a number of accounts at the same time could reduce your credit score by a significant amount and even drop you into a lower credit score bracket.  Also, having a large number of revolving credit accounts, such as store credit cards, signals to the credit bureau that you have the ability to create a great deal of debt quickly, which makes you a credit risk. Having two many credit card applications open at once is a killer.

Credit Score Killer #5 – Not Reviewing Your Credit Report

It is estimated that nearly 25% of all credit reports contain an error and the size of this error could be costing you when it comes to your credit score.  Most of the information that is included in your credit report was entered into a computer system by a person, making that information susceptible to human error.  If the information found in your credit report is inaccurate, the credit bureau has a legal obligation to determine the validity of the debt reported and remove the debt from your credit report if it is not a valid debt.

Incorrect credit histories are much more common than many people would imagine.  Some experts estimate that nearly one-quarter, or 25%, of adult individuals have mistakes on their credit reports through no fault of their own.  This is not difficult to imagine when you realize that the huge volume of credit information available on each individual with a credit history is handled by the three main credit bureaus of the nation, Equifax, Experian, and Trans-Union.

To fix incorrect information that has been issued to your credit report, there are several things that need to be kept in mind.

Tip 1 – Review All Three Credit Reports On A Regular Basis
Not checking your credit report is one of the biggest financial mistakes that you can make and the neglect could be costing you a great deal of money.  Incorrect items on your credit report can cause your credit score to drop, resulting in higher interest rates and the denial of credit in some cases.  Not all of the credit reports from the three credit reporting bureaus will reflect the same information so it is really important to check all three to make sure that none of them have any mistakes on them.

Tip 2 – Be Professional At All Times
The old saying that “you catch more flies with honey than with vinegar” holds very true in the case of an incorrect entry on your credit history.  You will want the person that you talk to about the issue to help you and that person will be more inclined to help you if you are nice and non-confrontational than if you call the company ranting and cursing about how they made a mistake and that they better fix it.  By speaking in a calm, clear manner, you will be better able to explain why you believe that the information in your credit report is inaccurate and will be able to understand which steps you will need to take to correct the situation.

Tip 3 – Keep Track Of All Steps Taken
When dealing with companies and creditors, an accurate log of whom you communicated with and when could be an invaluable asset.  Every time that you talking to a person about the incorrect information on your credit report, you should write down their name, position, way to contact them again, and when you talked to them.  If sending correspondence by mail, be use to request a delivery receipt so that you know when the information was received and who signed for it.

Tip 4 – Verify The Information To The Best Of Your Ability
In some cases, the information that has been reported to the credit bureau is accurate and it is the individual’s records that are flawed.  If you do not remember missing a payment on an account or you believe that a payment was not applied to the account, check your records first for confirmation before you call the credit bureau or the creditor and alert them to the situation.  If you do find that the credit report is accurate and the mistake was on your part, try to fix the mistake as soon as possible, by either paying the amount owed on the account or talking with the creditor to create a repayment plan for account balances that are large.

Tip 5 – Be Prepared To Take Your Case To Court
Although no one would like the situation to get this far, sometimes it is necessary to go to court to plead your case about removing incorrect items from your credit report.  Having accurate records of the steps that you have taken to correct the situation will be very beneficial if you are called to testify in court about the situation and will go a long way towards proving your case, as records show that you tried to resolve the situation by other means before going to court.

As the credit markets tighten, it is becoming more and more difficult for individuals to obtain loans and refinance their homes.  This is most apparent with individuals with marginal to poor credit scores or blemished credit histories.  But it is possible for an individual that has bad credit to be able to home refinance.

What Creditors See

The most important part of an individual’s credit history to a creditor is the individual’s credit score.  In many cases, the individual’s credit score will tell the creditor all that they need to know about a person’s credit history and base the interest rate that they offer on the individual’s credit score.  If the person’s credit score is low, then the creditor will determine that the person is a credit risk with a higher probability of defaulting on home loans. 

The good news for the person with the bad credit that wants to mortgage refinance is that a low credit score may not disqualify them from being offered a loan to refinance the home.  The creditor may merely decide to raise the interest rate for the loan in order to hedge their bets against the person defaulting on the loan.  The higher interest rate may add thousands of dollars to the loan over the life of the loan, but for some individuals that took out an adjustable rate mortgage to purchase their home, the higher interest rate may be the better option against the rate resets that will occur in the future with their current loan.

So What Are The Options?

A person with bad credit or a low credit score will generally have three options when it comes to refinancing their loan.  The first option is to choose to refinance the home at the higher interest rate, if they are approved by the lender.  This option will cost the homeowner more money than if they were able to obtain a more traditional interest rate, but depending on the reason for the refinance, the higher interest rate may be the better option.

The second option for the individual is to try to shop around for a better interest rate for the loan.  This can be dangerous because most lenders look at the same information about a person’s credit history and will offer the person the same interest rates across the industry.  If the homeowner finds a lender that is willing to offer an interest rate that seems too good to be true, chances are the lender is not a reputable one and taking out that loan may be more trouble than it is worth.

The last option is for the person to stick with the loan that they currently have and attempt to raise their interest rate over the next several years.  Individuals with adjustable rate mortgages that are about to reset may not be able to afford to wait long enough to raise their credit scores and raising the credit score enough to make a difference with lenders may take several years to accomplish as it is much easier to lower a credit score than it is to raise it.

In the last decade, credit cards have become one of the major ways to purchase items.  No longer just for older, financially established individuals, now most individuals can obtain a credit card as soon as they become an adult.  The easy access to credit cards has become a problem for the nation, as many individuals have failed to learn the basic rules for using a credit card and consumer debt has reached an all time high of over $600 billion.

There are a number of things that should be understood about credit cards before a person begins to use them.  Using a credit card unwisely has the ability to affect your financial future for years to come, resulting in higher interest rates, a lowered credit score, and the denial of credit in some instances.  It is important that individuals learn how to use credit cards correctly before they are expected to handle a credit card on their own.

1.  Purchases Made On Credit Will Cost You More Than Purchases Made With Cash
Purchases that are made on a credit card and are not paid off within a certain time period will always be subject to finance charges and interest payments.  The longer you take to pay off the balance of the credit card, the more money it will cost you in finance charges, fees, and interest.

2.  Credit Cards Should Be Used For Major Purchases Only
One of the easiest ways for an individual to get into debt is to use credit cards for many of their regular purchases without setting aside money to pay off the credit card at the end of the month.  In a very short while, the person will find themselves in financial difficulty as they approach their credit limit and do not have enough money to pay down the amount on the credit card.  By limiting your credit card purchases to major items and emergencies, you will ensure that you will not spend your credit to the limit on frivolous purchases.

3.  Try To Pay Off The Balance As Quickly As Possible
Every day that a balance remains on your credit card is another day that the credit card company can charge you interest and finance charges on that balance.  Credit cards should never be used with the intention of taking a long time to pay off the balance as this is a recipe for debt disaster.  If you must use a credit card to make a purchase, budget your monthly finances wisely so that you are able to pay off the balance of the card within a few months.

4.  Read The Terms And Conditions For The Credit Card Carefully
All of the important disclosures for the credit card will be found in the terms and conditions of the credit card agreement, often found in a separate booklet contained within the credit card offer envelope.  The terms and conditions will spell out the associated fees, interest rates, and finance charges associated with using the credit card and if you decide to apply for the credit card, you are agreeing to abide by the terms and conditions of the credit card whatever they may be.  Individuals that do not read all of the information carefully often find themselves on the hook for a credit card with a low limit and outrageous fees.

5.  Interest Rates May Rise Unexpectedly
In most credit card agreements, there is a clause that the interest rate that you are being charged for using the credit card could change at any moment for numerous reasons or no reason at all.  Many companies will raise the interest rate on the card if they find that you have missed other debt payments or your credit score dips below a certain amount.  Carrying a large balance on the card can mean financial devastation when the interest rate rises if the person does not have enough money to meet the increased payment amounts.  
  

Many people know how a credit score works and how it can affect their ability to receive credit cards at a reasonable interest rate in the future.  What many people do not understand is that a bad credit score has the ability to affect other areas of their lives as well.  There are a number of different ways that a bad credit score can affect other areas of a person’s life and the three ways listed below are some of the most common ways that a bad credit score can hurt you unexpectedly.

1.  Housing
Another area of your life that can be affected by a bad or low credit score is where you are able to live.  Most people know that a bad credit score can disqualify them from purchasing a house, but many people are unaware that having a low credit score can disqualify them from renting a house or an apartment.  Although most cases are determined on a case by case basis, individuals with very low credit scores have a much harder time being approved for a rental than individuals with higher credit scores.

Landlords review the credit scores and credit histories of their possible tenants to determine the amount of risk they pose to the property or to the landlord’s finances.  Individuals with low credit scores are viewed as less trustworthy than a person with a higher credit score, so the landlord may refuse to rent to individuals with a credit score below a certain threshold.  As long as the application is not denied on the basis of race or sex and all applicants are treated equally, the landlord’s actions are perfectly legal.

2.  Other Creditors
Although most people are aware that a bad credit score can affect their future ability to obtain credit, many do not know that a bad credit score can affect their existing credit accounts and their ability to obtain other types of loans from creditors, such as a car loan or a home equity loan.  If a person’s credit score falls below a certain rate, they may find that the interest rates of the credit cards that they have held previously have skyrocketed because that person is now considered to be a credit risk.  Higher interest rates on previous balances combined with an inability to obtain more credit or any type of loan has contributed to numerous individuals having to file bankruptcy in recent years.

3.  Employment
For many individuals, it is difficult to imagine how a credit score and being able to obtain employment may affect each other, but the fact is that a bad credit score is one of the leading reasons for a person to be passed over for employment or a promotion.  Certain types of employers look at an applicant’s credit score to determine how trustworthy and responsible the person is and any position of trust, such as an employment position with the government or in law enforcement, will review the applicant’s credit score to determine their security clearance.

Many individuals do not check their credit report on a regular basis for a variety of reasons. Some individuals believe that they are careful enough with their personal information and they will never be a victim of identity theft. Other individuals believe that there is nothing you can do to change the information in your credit report so checking it is a waste of time.

The truth is that checking your credit report on a regular basis can save you money by helping to ensure that you are not a victim of identity theft and by identifying any mistakes in your credit history that may lead to higher interest rates or the denial of credit. People who check their credit report on a regular basis are more aware of their financial situation and are able to identify problems quickly so that they can limit the amount of damage done to their finances and their credit score.

For most cases of identity theft, the victim is unaware that accounts have been opened in their name or purchases have been made that they are responsible for until they are denied credit or debt collectors begin to call to collect on the account. Most financial transactions have a limited amount of time available to dispute charges or identify cases of fraud so finding any problems promptly will help limit the liability of the victim.

By checking your credit report on a regular basis, you will be able to see if there are any accounts linked to your name and social security number that you did not open. Alerting these companies to the fraudulent nature of the account quickly will limit your liability for the charges and stop the criminal from using the account.

As much as we want to believe the information that the credit bureaus have on all of us is correct and infallible, the truth is that most of the information is added to computers by humans and mistakes can happen. It is important to view your credit reports for these mistakes because a major mistake on your credit report has the ability to lower your credit score, which in turn will qualify you for higher interest rates and may cause you to be denied credit.

All three major credit bureaus are required by law to investigate and correct any mistakes on an individual’s credit report so the reports should be checked on a regular basis to make sure that all of the information contained in the report is correct. Having any mistakes that are found corrected by the credit bureaus may raise your total credit score, which in turn will save you money in the long run.

If you ever want to hear a good story, talk to a financial counselor. I know an individual who happens to be one and he told me the story of a woman named Beatrice. Beatrice’s father told her from a very young age that it was very important to protect her credit score. She had called my friend the financial counselor and told him that she had not eaten in two days; however she made all of the minimum payments on her credit cards. Those are some seriously screwed up priorities. Americans have been indoctrinated to worship at the altar of the FICO score, and it’s time for that to stop.

I have a credit score of zero, and I love it. A few weeks ago, I tried to pull my FICO score from Fair Isaac, and they told me that my score was so low that they could not even calculate it because I have not had any credit activity in over a year. The error message even went as far suggested the reasoning for this is that I might very well be deceased!

How did I attain this very low score? I do not borrow money, period. I have accepted that ‘no’ is an acceptable answer to my wants and that if I do not have the cash to buy for something I simply cannot afford it.

At this point many will be asking, “Don’t you need a high credit score to get a home loan, automobile loan, get a credit card or rent an apartment?” In some cases yes, but I don’t borrow money; I don’t mind explaining to the apartment manager that because I’m not deeply in debt I actually have money to make my rent checks. The only thing that a high credit score enables you to do is get deeper into debt. No one wants to be thousands of dollars in debt and in a very deep financial hole, but so many people do it because they have fallen for the myth that you need to have debt as part of your financial life.

The only way to have a high credit score is to be in debt for great amounts of money over long periods of time. This isn’t exactly a winning financial plan. The FICO score is based on your debt payment history, your amount of debt, the length of your credit history, the types of debt that you have and any new credit that you attain! As the famous financial counselor Dave Ramsey puts it, a “credit score is an I love debt score”.

Does my FICO score of zero indicate that I couldn’t repay a loan, or that I am somehow not good with money? Of course not, it indicates that I don’t owe anyone in the world and have not for a long period of time and that I actually have some money. You can keep your FICO score.