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Protecting your credit rating isn’t easy. Credit cards, auto loans, home equity loans and our suspect health insurance system can ruin your credit score. From easiest to hardest, here are the dangers you need to look out for:

1. Closing your account:

Closing a credit card account lowers the amount of credit you have available, obviously. What’s not as obvious is the effect this has on your credit rating, which can plummet as much as 100 points in only 2 months as a result of closing a credit account. Why? Because one of the most important factors in calculating credit score is your “percentage of credit available”, and decreasing your available credit drops this score. Try to keep as much available credit as possible by using your card at least once a year on a small purchase to keep your account active. And remember, unless your card has an annual fee, do NOT cancel it!

2. Maxing out your credit cards:

Spending all the credit you`ve got is a danger sign to banks, who are looking for reassurance they’ll get back the money they’ve lent out. A credit card with a high limit but low to no balance indicates a responsible consumer who is likely to repay debts. Maxing out your credit cards creates the impression you’re spending more than you can afford to pay back, and drops your credit rating. The best remedy for this is to apply for more credit cards and request a higher limit for existing credit cards. Just take care not to spend this extra credit, or your rating will get worse!

3. Medical Collections:

We’ve all had this happen: your doctor’s office sends you the bill for something your health insurance is supposed to cover. Next thing you know, wires get crossed, the insurance company doesn’t pay the bill, and the doctor’s office turns the debt over to collection. Believe it or not, this happens all the time. To make sure it doesn’t happen to you, pay attention to every bill you get and follow-up with both your insurer and your doctor to make sure the bill is paid. It’s a little extra work on your part, but it’s well worth it — one single medical collection can drop your score 50 points.

4. Co-signing Gone Wrong

You’ve probably had family or friends ask you to co-sign a loan for them, and it might sound like a great idea. After all, why not help out someone you care about? But co-signing a loan is dangerous territory, credit-wise. You assume equal responsibility for the debt, and if the other person doesn’t pay up, you’re expected to. And if your co-signer files for bankruptcy, that’ll show up on your credit report, even if you don’t file anything yourself. Even if you can prove that the unpaid bills are your co-signer’s fault, your credit rating will still suffer. Don’t co-sign for anything, no matter how close the friend, unless you can afford to pay it yourself.

5. Paying Bills Late

Can’t remember to pay your bills? It could be the only thing keeping you from perfect credit! There are tons of people out there who do everything else right, but have poor credit simply because they pay their bills late. To make sure your bills are paid on time, every time, visit your bank and ask about an automatic bill payment program. Once you enrol in this, your bank will automatically send a payment to your creditor each month from your account. This will improve your credit by making sure you’re never late with a payment again, and can save you money by preventing late fees!

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Tags: Finance