Reader Question: What Damages Your Credit Score The Most?

Reader Phillip writes: “In this economy, I am concerned about getting a loan for a car and a house because of tighter lending restrictions being put out by lenders. If I am trying to build up my credit score, what kinds of things should I be doing to avoid damaging my score?

That’s a great question Phillip, and one that I am sure many people are asking themselves right now. There are actually all sorts of reasons to keep your credit score as high as possible, ranging from loans (like you asked about) to even getting approved to rent an apartment! Lower credit scores take away your ability to not only borrow money but can also keep you from getting a job. So it’s very, very important to keep your score in the range that most people are looking for, which is above 700. The lower you are than that, the more of a risk you are seen to potential lenders. With all of that out of the way, let’s talk about what action could hurt your credit score the most, which is…

Missing payments or always making them late.

This is the number one no-no when it comes to your credit score. Sure, there are many other factors that can negatively affect your score, but this one does the most damage. If you continually miss or make late payments, your credit score will take a real nose-dive. A full 35% of your score is based on credit history! No one is going to lend you money or let you move into an apartment if you rarely or never make your payments on time…or at all. If you cannot make the payments on the debt you already carry, who is going to want to give you even more? Not many people, other than maybe loan sharks and payday loan companies. The lesson here when it comes to keeping your credit score up? Pay your bills on time, even if it is only the minimum amounts due. Not doing so can really do incredible damage to your score. A few other things you want to keep in mind as well include:

  • Keep your existing accounts open and current.
  • Buy something once in a while on every card you have, and then pay it off.
  • Do not close your oldest accounts, as they demonstrate the length of your credit history.
  • If you carry debt, keep your debt to available credit ratio well below 50%.
  • Don’t open too many new accounts in too short a time.

Hope that helps a little Phillip, and good luck with that credit score Readers, have any more advice for Phillip? If so, please help him out in the comments!


EverFi Teaches Young People About Money Through Online Games.

While I am not a proponent of encouraging students to spend even more time playing games online, even I might be convinced by what these guys have come up with. EverFi is an online financial literacy education platform/game that is designed to teach Generation Y about being financially responsible. From CNN:

EverFi offers a five-hour series of Web tutorials that let students explore real-world settings, from the floor of the New York Stock Exchange to a used-car dealership, while absorbing lessons about saving money, earning interest and managing debt. As students acquire new skills, the software encourages them to play a SimCity-style game in which they control characters’ spending habits, reaping the rewards of good choices and suffering the consequences of bad ones.

I think it’s about time that someone start teaching young people about personal finance, and maybe doing it this way will work. My parents did not teach me much, and as soon as I got to college I started racking up credit card debt that took me years and years to pay off. Some of the topics the curriculum discusses includes:

  • * Savings & Compounding Interest: 401Ks and IRAs
  • * Understanding a Credit Score and its Implications
  • * Understanding Credit Cards and Managing Debt
  • * How a Bank Works
  • * Taxes
  • * Insurance
  • * Renting vs. Owning
  • * Managing Loans
  • * Investing Overview: An In Depth Review of Trading and How the Stock Exchange Works
  • * How the Federal Reserve Works
  • * Consumer Fraud and Protection

So kudos to EverFi and I hope they get the funding they need to take this program to more and more Generation Y students. I bet most of them could use any help they could get!


5 Ways To Start Decluttering Your Life & Home.

Although I wrote part of this post over 2 years ago, the techniques still stand for how to get started in cleaning up and eliminating clutter in your home. I am a big believer that decluttering can make you feel better and ease a lot of stress in your life, but that might be because I am slightly OCD about it. But if you are looking for a way to get started in your house, try some of these tips on for size…

1. Be a thrower-awayer. (Is that a word? I think not) If you have not used something in a few months, you probably do not need it. I am not talking about your pizza cutter because you have not had pizza in two months, but rather I am talking about clothes, old sporting equipment, back massagers, whatever. Having used and tired candles is of no use to anyone, clear them out and keep only the good ones. Year old rice in the back of the cabinet is probably bad, and a new bag runs about $1.50. Throw it away or recycle it.

2. Do the above on a constant basis. Stick to a schedule, even if it is only once every two months. Put it on your calendar if you need to, but it is important to always go back and look again once in a while.

3. Have a system. For your keys, designate a place you put them every day. We have a little guy screwed to the wall (that sounds funny, no?) that holds our keys, including our car, house, the storage room, the laundry room, etc. No one ever has to go looking for a key, because they are all right there. For your financial and life documents, invest in a file cabinet and file paperwork the minute you are done with it. A lot of people are using the Getting Things Done program, and although I find it overkill for my needs, you might get a lot out of it and should check it out. Until you deal with said paperwork, have an inbox on your desk that can hold everything you need to deal with in the immediate future, that way you will not forget to do it.

4. Sell or give away your movies and CDs that you do not watch or listen to anymore. I have touched on this before, but how many people are still seeing their old VHS copy of Point Break? You planning on watching it again? Did not think so. Utilize sites like Freecycle to give things away or Craigslist and Half.com to sell the stuff that has some value left in it.

5. File File File. No I am not talking about your paperwork, I am talking about articles from newspapers and magazines you want to save and even the rest of your CD collection. When we see something in a magazine we want to save, such as a recipe or information on a vacation spot, we cut it out and put it in the blue binder in the kitchen cabinet. Each page has its own clear file folder, and things are categorized in the book so we can find them later. A few years ago I took all the CDs and DVDs we wanted to keep, recycled the plastic jewel cases, and put them all in black binders that sit in our bookcase. It takes up much less room that way and makes your space feel bigger. Go ahead, try it, I am sure you will be happy with the change.


Sunday Money Roundup – Used Motorcyle Edition.

Now that warm weather has arrived, my yearly longing for a motorcycle has cropped up again. Every year I think “this will be the year” when I finally get my license and a cheap used bike…and then another year passes without doing it. Will this be the year? Where I live there is so much open space and scenery that owning a bike would make for some amazing weekend trips. One of these days I guess I will have to give in, no? On to the roundup…

My Dollar Plan has 6 Job Search Tips for New College Grads. They will need all the help they can get!

Wealth Pilgrim talks about 5 Ways (Some of Us) Can Stick It To The IRS In 2009.

Cash Money Life has some Reasons to Buy Whole Life Insurance.

Remodeling This Life talks about Going Without…in a good way.

Yielding Wealth has 3 Ideas For Additional Retirement Income.

Money Ning teaches you How to Trick Your Spouse into Sticking with a Budget.

Being Frugal wants you to Make Use of the Outdoors, and I could not agree more. It’s free and it’s beautiful!

Consumerism Commentary has some Education Opportunities for the Unemployed.

Corporate Barbarian says that Your Weight is Costing You Money, and I agree!

Moolanomy tells you How To Prepare For Car Breakdown And Deal With Roadside Emergencies.


Money Quote Friday – Size Of Your Funeral Edition.

No matter how rich you become, how famous or powerful, when you die the size of your funeral will still pretty much depend on the weather.” – Michael Pritchard

Ain’t that the truth. Have a great weekend everyone…