America lives in credit and it is known that Americans spend more than they earned and it was made possible because of debt and credit. It is nice to pay everything in cash but if you want to purchase big ticket items such as a house or a car, you need to have a very good credit.
For the most part, your credit is based on your FICO score and this is one of the most important thing to protect in your life because of how it would affect the “cost of borrowing” money or interest rates. The higher your score the more purchasing power you would have especially when you’re buying a house or a car. When the interest rate is low, you can purchase a much expensive house for the same monthly payment of a lesser value house. So below are the six things that you need to avoid in order to protect your FICO score.
Avoid making big purchases at the wrong time
Did you know that the larger your total balance as a percent of your total credit limit across all your credit cards, the lower your score will be. It estimated that potentially you would lose 1 FICO point for every percent of your credit limit that you use. So if you have a total credit limit of $20,000 and have an outstanding balance of $10,000 (50%), your score would be 50 points lower than if you had a $0 balance. Please keep in mind that if you can’t pay off your total balance in full, you should try to keep it below 30 % of your total credit limit.
Avoid charging anything for at least 2 months prior to applying for a loan
You should know that the payments made to the credit card companies may take a few weeks for the creditors to report it to the three credit bureaus. By not charging at least two months prior, there’s a higher chance that all the payments you’ve made to date will be seen in your credit score by the time a lender requests it.
Avoid missing any payment
Missing a payment will always cause your credit score to go down by at least 30 points. That’s why you should always pay your bill on time. Experts also recommend to pay the credit card debt in full and mail it as soon as you receive the statement.
Avoid carrying just a few credit accounts
This is one of the biggest mistake a lot of people make. If you don’t have any credit, you won’t have a score and if you only have a few accounts, there is very little history that the creditors can assess risk on you. Consider opening another credit-card account or two, or taking out a car loan or small bank loan. Lenders ideally like to see a potential borrower responsibly managing a mix of revolving debt.
Avoid applying for a lot of loans and credit cards within a short period of timeframe
Lenders don’t like to see a borrower who’s gone on a credit spree, applying for a lot of new accounts or loans in a short period of time. One mistake that people make is applying to a lot of credit cards because of the low interest rate offers.
Avoid closing unused accounts
Another mistake that people make is closing their accounts when they have just transferred their balance to a new one. Closing any unused accounts will greatly increase your debt to credit limit ratio. Remember the first “to do” – try to keep your balance below 30% of your total credit limit. For example, assuming that you have three credit cards, which have credit limits of $10,000 each but one of them is unused and you owe $10,000 total balance on the other two cards, closing the unused credit card would increase your total debt to credit limit ratio from 30% ($10,000/$30,000) to 50% ($10,000/$20,000)