Credit Cards

Think Your Credit Score Is Safe? Think Again

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Jeff Cuellar

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Managing your credit score is a lot like owning a pet lion. As long as you feed it regularly and respect it, you two will get along just fine. But once you start mistreating the beast by skipping its feeding time or abusing it – you end up with one pissed off animal that’ll tear you apart.

It’s a huge responsibility owning a lion… err, managing your credit score. But even if you’re the most responsible owner, there’s still a chance that you’ll get your faced clawed – I mean, take a hit to your credit score.

Everyone knows that missing a credit card payment has the biggest impact on your credit score, but there are other ways you damage it without realizing it.

Here are 3 ways you can unknowingly hurt your credit score:

 

Applying For Too Many Credit Cards at Once

It’s easy to get sucked into applying for several credit cards at once, especially when credit card companies throw some great sign up rewards at you – like immediate cashback, vouchers, or bonus miles/points. But what you may not know is that when you apply for several credit cards within a short period of time, you’re actually hurting your credit.

Because when you apply en masse for credit cards either to get the sign up rewards or to see who will approve you (shopping around) – credit card companies will believe either you had multiple rejections, or your applications were successful.

Regardless, of the result, the credit bureau will lower your credit score if you make too many “enquiries” within a short amount of time. Because asking for several lines of credit at the same time makes the credit bureau as suspicious as an ICA officer who spots a nervous looking guy fumbling with his luggage – it doesn’t look good.

If you’re applying for several credit cards at once, going after 1 or 2 at one time is a much safer bet.

Important Note: Applying for numerous personal loans or a mix of loans and credit cards can have the same credit score reducing effect.

 

Cancelling the Wrong Credit Card(s)

No one can blame you for wanting to cut down on the amount of credit cards you have – it’s like declawing your pet lion so that it poses less of a threat to you (metaphorically speaking). And if you’re looking for the right number of credit cards to have, credit card expert Serene Anne says 3 is the magic number.

But before you begin to cut your credit cards the way a conservative politician cuts funding on social programs – make sure you choose the RIGHT credit cards to cancel. Otherwise, you could end up hurting your credit score instead of helping it.

When cancelling your credit cards, make sure you keep your scissors away from the following:

  • Credit cards with the longest credit history
  • Credit cards with the largest credit limits

You should avoid cancelling these cards for two important reasons: 1) because cancelling credit cards with great long-term credit history removes any good work you’ve done to  keep that good rating and, 2) because cancelling credit cards with large credit limits can reduce your available credit and may affect your debt-to-credit ratio.

 

Using Too Much Credit

Not monitoring how much credit you’re using on your cards is about as dangerous as driving to Johor Bahru with a broken fuel gauge – you’re basically pulling the lion’s tail hoping that it won’t turn around and take a swipe at you.

When it comes to using too much credit, the formula is quite simple – if you’re using 50% or more of the available credit on your card(s), you’re already taking a hit on your credit score.

That means if you have a credit card with a $20,000 limit and you’re using $10,000+ on it, get it under the $10K mark to reduce the damage to your credit score. So keep up to date on how much credit you’re using, and remember that the less credit you utilize on your credit cards, the safer your score will be.

On a final note, stay AWAY from maxing out any credit card! Next to missing payments, nothing will drop your credit score worse than cards that are maxed out.

 

Has your credit score dropped because of these or other actions? Share your experience with us on Facebook!

Image Credits: jannet162011

 

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Jeff Cuellar

I'm known by many titles: copywriter, published author, literary connoisseur, ex- U.S. Army intelligence analyst, and Champion of Capua.