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5 credit score serial killers

You can avoid a horror-movie ending for your credit rating by avoiding these menacing credit-score-damaging monsters.

By MSN Money Partner Nov 11, 2011 4:39PM

This post comes from Geoff Williams at partner site


When we're kids, those shirts in the bedroom closet can look like lurking monsters. Without a night-light, the dark can seem ominous and chilling. When we're a little older, our fears turn to horror movies, roller coasters and pop quizzes. But for grownups, nothing is quite as dark and creepy as a steadily dropping credit score, that mysterious number that determines how favorably you're viewed by all types of lenders from credit card companies to mortgage issuers.


Credit scores may be enigmatic, but a few precautions will help keep the monsters at bay. It's not quite as simple as going out to the store and buying wooden stakes and garlic, but as long as you're on solid financial footing to begin with, a few simple practices will help keep your credit score safe. Stay away -- far away -- from these five surefire credit-score killers.


1. Paying late

Even one day late isn't smart, because of the late fees that can be triggered, but what will really hurt your credit score is "when you're 30 days late or more," says Tracy East, director of outreach and social media for CESI Debt Solutions, a nonprofit credit counseling service. "It's impossible to say how much your credit score will drop because the credit issuers use an algorithm that has many parts," says East, but she can give consumers a ballpark idea.


Not long ago, she had an incident with a credit card company in which two payments weren't recorded properly, making it look like she had two late payments. She was able to get everything resolved, but in the period between when she discovered the problem and when she was able to get things fixed, she saw her credit score drop 75 points. All from two late payments.


2. Applying for too many credit cards

Crazy as it might sound at first glance -- hey, I'm just applying to get a credit card and sending in a few applications, what's the big deal? -- lenders always think of the worst-case scenario when they see that you've applied for a handful of credit cards.


You, as a consumer, may have very innocent motives for applying for, say, three credit cards in one evening (i.e., you'd like one card to rack up rewards points, another for emergencies and perhaps another for your business), but a lender assumes that you're utterly broke and trying to raise cash in a hurry without worrying about how you're going to pay it all back. Post continues below.

On the other hand, if you apply for several car loans or mortgages all at once, lenders typically get that you're looking for the best deal and you aren't trying to buy four cars or nine houses, and they typically won't ding your credit score.


3. Not using credit cards at all

It is perfectly possible to not have credit cards and still have a high credit score. If you've been around the block a few times, and you have a long history of making timely payments on utilities, car loans and mortgages, your credit score will likely be just fine. But using credit cards wisely is a useful way to show a lender that you're responsible with your money, and it can be a relatively quick way to develop a credit history.


"You have to establish a payment history to have a good history," says Sara Robicheaux, an associate professor of finance at Birmingham-Southern College. "I always tell my college students that the first thing they need to do when they get their first job is apply for a credit card and get bills put in their name. This is to help them start to establish a credit history. The length of the credit history makes up about 15% of the credit score."


4. Maxing out all your credit cards

Even if you're paying everything on time and haven't been late in 20 years, your credit score will suffer if your revolving debt (which isn't a great idea to carry, anyway) is too high in relation to your income. That's because if you're always maxed out, lenders assume you don't have a ton of cash at your disposal -- if you did, you likely wouldn't have maxed-out cards -- and that one significant setback, like some hefty hospital bills or your losing your job, could keep you from paying off your debts.


"You should never utilize more than 50% of your credit limit," advises CESI's East. "Once you go over that threshold, and especially when you reach 75% to 90% of your credit limit, it starts having a negative impact on your credit scores."


5. Going bankrupt

If anything will drive a stake in the heart of your credit score, well, this is it. That said, it really depends where your credit score is to begin with. If you have a formidable credit score in the 700s, but something recent has happened that has financially devastated you, and you declare bankruptcy, then, your credit score could easily plummet 200 points. (On the other hand, if you're declaring bankruptcy after years of late and missed payments, and years of maxed-out credit cards, your credit score may not have much farther to fall.)


But if, despite your best efforts, one of these serial killers manages to strike a blow to your credit, there can be a happy ending to any of these tales of horror. Credit scores don't always adhere to the laws of gravity. What comes down can go up. But be always on your guard, for like Dracula, the Mummy, the Werewolf, Freddy Krueger and every other scary Hollywood movie character out there, credit score serial killers can always come back to life.


More on and MSN Money:


Nov 11, 2011 9:54PM
Why is it that banks screw up, they get bailouts and when individuals screw up, they get hammed by the banks?
Nov 14, 2011 3:36PM

Trantz, you don't understand how the financial system works.  Most small businesses rely on short term loans (think 30 days) from banks to float payroll.  If banks go out of business or can't afford to make those loans, small companies don't make payroll.  If small companies, which are responsible for the greatest share of jobs, can't make payroll, their employees can't spend money.

This all acts to effectively lock up economic activity, which has a snowball effect (the dollar multiplier effect).

Nov 12, 2011 1:30AM

I still don't understand why WE had to bail out banks.  Weren't their depositors/customers insured

by the FDIC?  Screw the banks, pay the people.  Another thing, if the Govt wants to put a whole

lot of people to work, why doesn't it put all electrical lines, phone lines, cables etc into an impenetrable, somewhat flexible tube in all suburban areas where there are trees in the yards of homes?  Since electricity can be obtained wirelessly, there would be fewer power outages from

trees taking down power lines and fewer trees being cut up or destroyed.  Better air quality and

 more shade.  And, we don't need gas piped into our homes.  It will never be a product that can

be acquired remotely.  Use that "vast amount of gas" that this country has to produce electricity.

Sell ourd coal to China and Russia and Africa and any other country that needs it.  After all,

that is the way every country has started out.  Using the cheapest power source they can afford.   

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