4 Little Mistakes That Can Ruin a Good Credit Rating

Building good credit has always been a challenge to some people. It’s not because people don’t have the means to build good credit, but because some don’t realize the little things they do that could affect their credit. Yes, building good credit isn’t just about good spending habits. It actually involves a lot of avoiding those minor mistakes that could have a long-term effect on an individual’s credit score. Here are some of those mistakes that should be avoided at all costs to maintain a good credit standing.

1. Canceling Old Credits

It’s easy to think that cancelling old credit cards would be a good first step to start with a clean slate. In fact, this does more damage than good because it effectively erases the person’s credit history. If a person has an old credit card that’s been inactive for a couple of years, it’s better to keep it active and just not use it than cancel it altogether. This retains the person’s credit history, which is better than not having one. Credit history doesn’t have a huge impact on a person’s credit score, but it still counts. 

2. Not Having an Emergency Fund

Accidents are accidents, and it can happen to anyone without any warning. The same goes for certain illnesses or diseases, which is why it’s crucial to build an emergency fund that would come in handy in such situations. Those unexpected events could easily eat up a lot of money. There’s also the possibility of losing a person’s source of income due to some unforeseen circumstance that’s beyond control. Emergency funds are designed to help anyone go through such tough situations, and it can then maintain good credit and avoid falling into financial debt.

3. Having a Fear of Credit Reports

A lot of people have a fear of checking credit reports due to the possibility of it affecting their credit score. While that is completely true, that’s not always the case. There’s actually a difference between hard and soft credit checks. Performing a soft credit check doesn’t affect the score at all and is actually a good resource for keeping track of one’s financial status. It’s also a great way to detect identity fraud and catch any mistakes in a particular credit report.

On the other hand, a hard check is when a bank or financial institution requests to check a person’s credit history for a loan application. Hard checks do have some effect on a person’s credit history, especially if multiple institutions are requesting a report for the same individual. 

4. Transferring Balances to a Single Credit Card

Now, this may sound like a convenient solution, but transferring all balances to a single credit card has some disadvantages. Creating one high balance that approaches the credit limit actually sends credit utilization way up, which has the potential to hurt a particular user’s credit score. It gives the illusion that a user is almost reaching or even exceeding the credit limit when in reality, they just consolidated all their credit card balances into a single account.

Conclusion

Credit scores can be a delicate thing to maintain. It needs careful consideration, and even the most minute changes and decisions could affect it for the worse. Consider these mistakes and avoid them at all costs.

DebtHelpers.ca offer a range of consulting services and solutions designed to help clients reach their financial goals. Being debt-free isn’t easy, but it’s very much possible with the help of a debt consultant that can be relied upon. Contact Debt Helpers today and to get started.