Are You Hurting Your Credit?
In the world of credit, the option that seems the most logical sometimes is not the best option. When you think about taking out a loan, the first thing that comes to mind is “how quickly can I pay this back?” If that is your mindset, then you are going to want to take a look at some of the ways you could be hurting your credit score!
1-Closing A Credit Card
Credit cards are a necessity now a days with the ever-rising price of amenities and general necessities. If you happen to have a credit card that doesn’t see use, the obvious option would be to close it out, right? Believe it or not, closing a credit card can hurt your credit more than if you had kept it open for small uses here and there. When a card is closed, any subsequent positive credit and payment history will be stopped. Keeping the card open and only using it for a small payment like a coffee or gas will keep that positive payment history and credit utilization reporting to the bureaus with minimal effort!
2- Credit Utilization/ Payment History
“As long as I’m paying my credit cards on time, my credit score will rise.” I thought this for the longest time until I took a look at my annual credit report and had seen a substantial drop after making payments on one of my credit cards through out the year. Just because the card was paid on time, I was sitting extremely close to the cards max. Your credit utilization plays a huge part in your final credit score and the lower it is, the better it will reflect on your report. Generally, keeping your credit utilization rate (the amount you owe on the card) below 15% will steadily increase your score along with on time payment.
3- Paying Off A Loan Early
While it can benefit you financially to pay off a loan early (especially if you have a high interest rate) it can also harm your credit score. When you pay off a loan, just like closing a card, new payment history will not be made and your “credit mix” will lower. Your credit mix is a report showing how many distinct types of credit you are able to manage responsibly. A healthy credit mix shows a few open cards in good standing, a home or vehicle loan and low active debt.
When there is a debt owed, making partial payments does not better your standing with the debt collectors or the credit bureaus. Even if a payment is made on a past debt, the payments will still be listed as “late” and puts the account at risk of delinquency. While this is not a situation that you want to just “take a loss on” if you are struggling to make payments, speak with a credit counselor to determine the best course of action.
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