Finance
Six moves you’re making that can ruin your credit score
Former Richmond Federal Reserve President Jeffrey Lacker shares his expectations for the Fed’s March meeting and reacts to new housing data.
One of the most important lessons regarding your finances to understand is to preserve and protect your credit score, as it can affect many directions and decisions throughout your life.
“Your credit score is one of the most important numbers in your financial life; it goes a long way toward determining whether or not you’ll be approved for loans and lines of credit, along with the interest rates you’ll pay,” Ted Rossman, senior industry analyst at Bankrate.com told FOX Business.
In addition to a credit score being considered to qualify you for mortgages and car loans, Rossman explained that your credit can be checked for other reasons, including apartment rentals and utility and cell phone providers when you open a new account.
“If you have a low credit score, you might be denied or a larger security deposit might be required,” he said.
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With all this on the line, protecting your score should be a top priority. Even those with favorable credit scores and those who practice sound money habits can sometimes make foolish choices regarding their credit scores. To put you in a better position to not make these foolish choices, read more about what you shouldn’t do.
Here are six foolish flubs that could sink your credit score
Co-signing a loan
Rossman said co-signing a loan is “potentially a very big mistake” as people don’t realize this is a sizable legal commitment.
“You’re on the hook to pay that money back if the other borrower doesn’t,” he said. “Your funds and credit score are on the line. You’re not just vouching for someone or giving them a reference. You’re legally responsible for that loan, and it should show up on your credit reports just like the primary borrower.”
A man works from home on his laptop. (iStock / iStock)
Applying for too much credit in too short a time span
If you’re opening a bunch of new credit cards, this could backfire.
“In general, it’s suggested to apply for credit no more than every six months or so and this is all types of credit combined,” said Rossman. “If you get rejected for a credit card and then try again quickly, you might have two rejections and two hard inquiries which negatively affect your credit score and no new card to show for it.”
Not staying on top of your statement due dates
Set up alerts to make sure you’re paying your credit card statements on time.
“Our time and energy are pulled in a million directions every day, which makes it easy to accidentally miss a credit card payment due date,” said Sara Rathner, credit cards expert at NerdWallet. “If you’re more than 30 days late, your credit score could drop by a substantial amount.”
Visa Inc. credit and debit cards are arranged for a photograph in Washington, D.C., on April 22, 2019. (Photographer: Andrew Harrer/Bloomberg via Getty Images / Getty Images)
To prevent this, Rathner suggested logging into your account and set up text or email alerts so you know when the next due date is approaching.
“You can also set up autopay so you can take that task off your plate entirely,” she suggested.
Not paying all your obligations in a timely fashion
Credit card and loan payments aren’t the only things that can affect your credit, said Rathner.
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“Utility bills, rent and other monthly payments can be reported to credit bureaus. Set up calendar reminders for those due dates so you don’t miss payments,” she added.
Failing to monitor your credit
Get into the habit of glancing at credit reports and bank statements so you can report fraudulent activity ASAP, she said.
“Signs of identity theft can be as subtle as an unexpected small charge, or as glaring as an unfamiliar account opened in your name,” said Rathner.
Get into the habit of glancing at credit reports and bank statements so you can report fraudulent activity ASAP. (iStock / iStock)
Spending to get rewards when you have debt
Chasing rewards can be a slippery slope, particularly if you have debt.
“The interest you’re paying on that debt can wipe out the value of any rewards you’d earn in just a few months,” said Rathner.
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She recommended that instead of running after points that are worth a penny each, look into lowering your interest rate with a balance transfer card or personal loan.
“Then, pay that debt down as aggressively as you can to save hundreds on interest,” she said.
‘The Big Money Show’ co-hosts discuss buy now, pay later spending options and the impact it will now have on your credit score.
Small, everyday purchases like a meal from DoorDash are now able to be financed through eat now, pay later options — a practice that some experts deem “predatory.”
“You’ve got to have enough sense to not follow the urge to finance a taco, okay? You have got to be an adult,” career coach Ken Coleman told “The Big Money Show,” Wednesday.
“This is predatory, and it’s going to get a lot of people in deep trouble.”
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DoorDash and Klarna are now partnering up to extend buy now, pay later options to consumers. (Reuters, Getty / Getty Images)
Financial wellness experts are continuously sounding the alarm to cash-strapped consumers, warning them of the devastating impact this financial strategy could have on their credit score as some lenders will begin reporting those loans to credit agencies.
Consumers may risk getting hit with late fees and interest rates, similar to credit cards.
“So your sandwich might show up on your FICO score, especially if you pay for it late,” FOX Business’ Jackie DeAngelis explained.
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Major players like Affirm, Afterpay, and Klarna have risen to prominence at a time when Americans continue to grapple with persisting inflation, high interest rates and student loan payments, which resumed in October 2023 after a pause due to the COVID-19 pandemic.
Ramsey Solutions personal finance expert and ‘The Ramsey Show’ co-host George Kamel discusses the ‘buy now, pay later’ craze and the trend that celebrates the financial benefits of being childless.
“The Big Money Show” co-host Taylor Riggs offered a different perspective, suggesting that company CEOs have a “duty” to attract as many customers as they want.
“Unfortunately for me, this always comes down to financial literacy — which I know is so much in your heart about training people to save now by later,” she told Coleman, who regularly offers financial advice to callers on “The Ramsey Show.”
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Coleman continued to come to the defense of financially “desperate” consumers, arguing that companies are targeting “immature” customers.
“I’m for American businesses being able to do whatever they want to do under the law. That’s fine. But let’s still call it what it is: it’s predatory, and they know who their customers are,” Coleman concluded, “And I’m telling you, they’re talking about weak-minded, immature, desperate people.”
FOX Business’ Daniella Genovese contributed to this report.
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