Your credit score – the rating given to you by the financial industry based on your credit and spending habits – is a strange thing that seems to defy any logic or straightforward understanding.
The problem is that most people don’t know about their credit score, or even how it works, until they actually need it, and by then it could have suffered damage that might take some time to repair. Even the most fiscally responsible person might find that their credit score is lower than they think, usually because they’ve fallen into bad habits without actually knowing it. For example, a single missed credit card payment, simply because you forgot to send off a check, could give your credit score a hammering, so it is clear that you need to be particularly careful when it comes to credit and borrowed money.
One of the biggest traps that people fall for that hits their credit score is relying too heavily on credit. If you’re good with money – and credit card members usually are if they pay off the full balance every month – you’ll keep your borrowing at an absolute minimum. However, if you let your debts slide – leaving a little bit of a balance one month, letting it grow a little bit the next, you can soon find yourself effortlessly slipping into debt without really knowing it. If that debt piles up to more than half your available credit, then it soon starts biting into your credit score.
There’s a vicious circle to be avoided as well – trying to cover credit with even more credit will only make things worse, especially as interests rates are likely to rise as your credit score gets worse. Too much credit, obviously, hurts your credit score.
That act of trying to use credit to cover credit also brings us to another credit score trap. Applying for multiple credit cards and loans at the same time will also batter your credit score. Some people do this to see banks will accept them, but as experiments go, it’s a bad one, as each application makes it less likely that you’ll get accepted at a decent rate. Multiple rejections might also make it more difficult to get the credit you really need in the future. To be honest, you need never apply for multiple cards. To be fiscally responsible, you should compare the available cards that suit your lifestyle and financial position – and our website is a superb place to start – and apply for a single card that gives you best value.
The simple solution is to keep as few credit cards as you need, with the lowest – preferably zero – balance. There’s nothing to stop you holding multiple cards. Indeed, many people do to ensure they make the most of excellent offers and points schemes, just beware you protect your credit score when it comes to managing your money.
Article by Jason Taylor – [email protected]