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The modern adult needs to know everything they can about credit lines in order to manipulate them to their advantage because one of the greatest weapons you can have is a strong credit score. With a strong credit score you can save tens of thousands of dollars during your lifetime on interest payments and even gain access to higher credit lines earlier on in life, but you need to be responsible and avoid these four traps that all credit owners can fall into. Maxing out Credit Cards A large portion of your credit score is calculated by taking into account your total available credit against how much you have left of it. Even if you only have a single credit card with a $1,000 limit, if $999 of that is already used up it will start draining your credit score. Having credit isn’t what affects your credit score negatively; not being responsible with the credit you have is what tanks your score. If you want a credit card to be a positive influence on your credit score, you will need to make sure that you have 70% of the maximum credit available to you at all times. Anything less than threshold will be detrimental to your score. Missing Payments Many people wonder what is a bad credit score and what’s a good credit score, and so here’s the breakdown: credit is ranged from 400-900 usually and anything between 400 and 600 makes you a high risk account while 700 and above makes you a good risk. These numbers – your risk level – will be a huge factor in determining whether you can get certain lines of credit as well as the interest rates that go along with it. A huge chunk of this score is reliant on how responsible you are with your credit, and not paying back the credit you’ve taken out is a big red flag on your account, telling companies that you are not able to cover the money they can loan you. By keeping your credit score up, you can make sure you have no problems with getting the credit you want. Loan Modifications Does a loan modification affect a credit score? In short: yes. But what affects credit scores differs per modification. There are some government programs that might keep their hands off your credit score, but then there are others that won’t be so lenient. If you change the original conditions of a loan with the lender, make sure they let you know how it will be marked on your credit report. If the words “paid for less than originally agreed” or the misleading “settled” appear, then be prepared to have your credit score take a hit. The lesson here is to do your research and know exactly what comes out of your loan modification. Almost Anything to do with Credit Cards Credit cards are terrific if you can be responsible with them, but they can also become terrible traps for the unprepared. If you consistently make your payments, use your credit cards annually, and keep the balance far away from the limit, you’ll have a gleaming credit score. What affects your credit score negatively becomes a long list when it comes to credit cards. For starters, not making payments will definitely lower your score, but so will not using your card. If you don’t use your card for a year, it might be closed and lower your total available credit, which in turn lowers your credit score. If you close a credit card account, the same thing will happen, and if you max out your cards then you’re just asking for trouble, because you might get caught in a loop of revolving credit for months where your balance keeps cycling above and below your credit limit, critically draining your credit score. The key to protecting your credit score is responsibility, and that means paying attention. You need to be able to strike a balance between spending and saving to stay within the green with any line of credit you take out. There are many traps you can fall into, like the four listed above, but if you plan for the future you won’t be caught unprepared. Joy Mali is an active blogger who is fond of writing articles on Bad Credit Loans to encourage people to manage and protect their credit. Follow her on Twitter to know more on things to avoid in order to protect your credit score.
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