5 Bad moves that torpedo your credit score

5 Bad moves that torpedo your credit score

Your credit score is the gateway to your creditworthiness and how cheap you can get credit, and so you want it as high as possible. If you boast a credit score of 750 or more, you will pay the lowest interest rate offered on most loans and credit cards. But if your credit score is 650 or lower, you'll be hit with a lot of fees and higher interest charges if you get approved for credit at all. Because most Americans don't have a huge sum of money to pay for a house, buy a new car or even send their child to college, getting your credit score is the best way to avoid overpaying when borrowing. Far too often, people make mistakes that can hurt their credit score for as long as seven years. From missing payments to foreclosure in your home, here's a look at five bad moves that will torpedo your credit score.

Make late payments or miss them altogether

One of the easiest things to avoid that can have a big impact on your credit score is missing payments on your credit cards, mortgages, student loans or other secured or unsecured debt. (Read more in "How Credit Card Delinquency Works.") That's because one of the things the credit agencies look at when determining a credit score is your payment history. Missing a payment here or there is no big deal, but if you have many late or missed payments over a long period of time, your credit score will be hurt big time. Even just paying the minimum each month is better than being late with your payments.

Credit card balances that are too high

In addition to your payment history, a big part of determining your credit score comes from the amount of current debt you have. (Read more in "3 Important Credit Score Factors".) Known as credit utilization, it's the ratio of credit card balances to credit card limits. The lower your credit utilization ratio, the better your credit score because it shows that you have self-control. Sure, you may have $10, 000 in credit available, but if you've only used $1, 000 of it, you'll look good in the eyes of the lender. If your credit cards are maxed out, your credit utilization will be 100%, which doesn't do well for a high credit score.

Your account goes into a "charged off" status

Missing payments in and of themselves hurts your credit score, but do so too often and the status of that particular credit card can be billed. Off status, which means that while you still have to repay your debt, you are not eligible to make purchases on the credit card. Typically, an account is charged off after 180 days without a payment and will remain on your credit report for seven years.

An account is in collections

Just because you ignore the bills in the mail and don't mean the phone calls from your creditors, they will miraculously disappear. If you ignore it, you may buy some time, at least in your mind, wait too long to deal with a bill, and it will end up in collections. Many companies call on third-party debt collectors to collect past-due debts for them. (Read more in "How the collection agency works.") If your account ends up in collections and you do nothing, your credit score will drop. When an account is recorded as in collections, it can significantly reduce your credit score. For people who have high credit scores to begin with, the number of points you will lose is more than someone with a low credit score.

You have foreclosed on your home

The housing bubble and subsequent bust of a few years ago saddled many people with underwater mortgages and large monthly payments they couldn't afford. The result: a period of record foreclosures that torpedoes many American credit scores. And even though many people were in the same boat, this didn't prevent their credit scores from taking a big hit from foreclosure. Not to mention the foreclosure will stay on your credit score for seven years, although the impact will diminish over time. Once you start making your mortgage payments, it's a good idea to contact your lender to see what options are available to you. Although foreclosure won't ruin your credit score forever, it will have a negative impact in the medium term.

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