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Keeping your credit in good shape is extremely important. If you don't already own a home, there may come a time when you are ready to make that commitment. Lenders will look at your credit history, your payment schedule, and new-card application frequency. What will they see? Do you think your score is safe because you pay your balance every month and never borrow more than you can afford? This is a good start, but you can still harm your credit by making the following serious mistakes.
1. Running a High Balance
An extremely important part of your report is the credit-utilization ratio. It shows the potential lender the percentage of available credit you are using on your cards individually and the total sum. If your credit-utilization ratio is high, it can cause serious damage to your credit report, so try to keep it no higher than 30 percent. Avoid charging everything to a single card to get reward points, even if you pay the balance the day your bill arrives in the mail. Your utilization-ratio on that card will show as 90 percent, and that is not a good thing.
2. Opening or Closing Multiple Accounts
Closing out a seldom-used credit card will not boost your credit rating because it will not boost your credit score. This is another mistake that lowers your amount of available credit while raising your credit-utilization ratio. Old credit cards should be kept open unless they have high annual fees. When you are opening new credit card accounts, keep the applications several months to a year apart. Card issuers make a hard inquiry to each credit agency when requesting your score. Too many applications in a short time, even if accepted, put a flag on your credit report.
3. Believing Your Spouse's Credit Doesn't Affect Yours
It's true that credit-reporting agencies keep separate scores for spouses; however, the financial habits of your better half can have a significant impact on your credit. If you and your spouse have any joint accounts or loans, they affect both of your credit scores. If your spouse pays bills late or has high card balances, it can have a significant impact on your credit score. The director of consumer education at Credit.com states, "Any joint account will appear on both of your credit reports, and the payment history is counted as if it's your own, whether or not you use it." It is a mistake to put all credit accounts in one spouse's name and leave the second spouse with a gap in his or her report history.
4. Co-signing a Loan
The loan will be listed on your credit report, and the behavior of your friend or relative will be reflected on you. If he or she makes late payments or skips a payment, that behavior is listed on your credit report. If the loan goes into default, it goes on your record, and you will be required to pay off the loan. Any person needing a co-signer is a risk you shouldn't take.
Avoid making these mistakes and make your payments on time so you can keep your credit rating strong and healthy.