Maintaining a good credit score is a daily challenge for most people. Being mindful of all your incomes and expenses, as well as keeping track of all your debts, is essential to maintaining good credit.
Your score may increase one month because you’ve reduced your debts, or it may decrease another month because you were late on a bill. Small fluctuations are easy to control, especially when you know what caused them.
However, you need to pay attention to major fluctuations, because these three actions could ruin your credit:
Paying off your credit cards
Paying off your debt always improves your credit score, right? This is not always the case. While it is important for you to pay off your debts on time, closing a line of credit like a credit card or loan reduces your overall credit value. The decrease in your credit value decreases your credit score.
If you have three loans of $5000 each, your total credit value is $15000 and your credit utilization rate might be quite low. If you pay off one of these loans, your credit value becomes $10000, making your credit value lower and increasing your utilization rate which directly affects your credit score.
Many people use credit card purchases as a means to build their credit score. However, Kikoff offers a way to build credit fast without having to layout a huge expense. As a result, you might find yourself using your credit card less and thus, your available credit might be tempting you to make a large purchase.
Large purchases can damage your credit score. Your credit card balance is usually reported on the last day of the billing cycle.
Even if you pay off the credit card in full at your regular date, the amount recorded at the end of the last cycle will be the amount reflected in your credit score. A billing cycle is usually 28 days, so the chances that you will have paid off your purchase before the end of the cycle are low.
Ignoring credit reports
Credit reports are available to you for your benefit. Checking your credit report regularly can give you an idea of how good your score is and how to improve it if it is not up to standard. Some credit review companies also allow you to compare your score to other people in your country, giving you an idea of how well you are managing your debt.
Regularly checking your credit score can also highlight inaccuracies or errors. While some errors may simply be human calculation mistakes, others might be more serious.
An error on your credit report could indicate that you are a victim of fraud or identity theft. Any errors in your report should be reported to your local credit bureau immediately to ensure minimal damage is incurred.
How to remedy the problem
To help you avoid these unexpected knocks to your credit score, there are a number of steps you could take. When paying off your credit card, be sure to keep it open and active.
While you might not enjoy having credit card bills looming over you, especially in these tough times, making small purchases here and there without closing your credit card maintains your credit value, and this keeps your credit score stable.
You should avoid large purchases on credit if you can’t make the pay off before the end of the billing cycle. Unless it is an emergency, try to delay your purchases until you can pay cash or until you can pay it off quickly.
Lastly, make a habit of checking your credit score regularly. Regular checking can help you avoid or reduce the effect of fraudulent activity done in your name.