One of the best ways to turn your credit card score into a disaster is through misuse of credit cards. There are several ways to misuse a credit card and everyone one of them can have disastrous effects on your credit score.
One of the most obvious misuses can send an excellent credit card score down one hundred points, putting you into a whole different credit score range. If you have a perfect score of eight hundred and make one late payment, you could end up at seven hundred. This will make you unable to secure the best interest rates on loans. Your payment history makes up a good portion, 35%, of your credit score. So that one late payment could drop your credit card score instantly, while you have to spend over a year repairing that single use. It only makes sense that continued late payments could be the only thing keeping you from having an excellent credit score.
A second misuse is maxing out credit cards. Pushing your account to its limits and incurring high balances show you as a higher risk. Fair Isaac, the company that determines your FICO score, suggests keeping your balance at no more than 35% of your total credit allowance. Since one of the factors used to determine your credit risk is your debt versus your credit allowance, a low debt and high credit allowance paints you as a better credit risk.
While you may think lowering your amount of credit cards is a good decision, you might want to rethink that. Closing down several credit cards, especially your oldest ones, can have a deleterious effect. That 10 year credit card you’ve been keeping paid will no longer be a positive reflection on your credit score, and could be a very large negative effect when you close it. Also, if you are closing credit cards and opening new ones in order to get a better interest rate, it can make you appear to be a credit risk. Every time you apply for a new credit card, even if you are not accepted, it shows as a negative report on your credit card score.
When considering new cards, even those in store saving cards can reflect badly on your credit. Every time you apply for any type of credit card it is reported to your credit report. So suddenly opening up several new lines of credit very suddenly is a red flag to creditors.
While not completely under your control, credit card theft can be the downfall of an excellent credit card score. By keeping up with your credit reports you can watch for strange purchases. If you find them, immediately stop the card and begin reporting it to the relevant authorities. That includes credit report bureaus. By reporting it to them as well, they can put a fraud alert on your credit report, making it much more difficult for people to get a credit card in your name.
Misuse of credit cards can ruin your credit score. However, keeping track of what’s purchased and making timely payments can a great step to building an excellent credit score.