Wednesday, August 1, 2007

10 Steps to Wreck Your Credit

Here are my top 10 ways to wreck your credit

10.Become a Co-Signer – When you cosign for another person, you become completely responsible in the event that the other person defaults. If you cosign for a car loan, and the other person does not make the payments, the car can be repossessed and sold and the lender can look to you to make up any deficiency. Co-signing increases your debt limit and can make it more difficult for you to obtain other credit. Finally, as long as any loan balance remains outstanding, you won’t be able to get off the hook for the loan.

9. Ignore your limits – Get ready to incur penalties, interest and over the limit fees. If you use more than 1/3 of your available credit on an account, your credit score will drop. If you use 80% or more of your limit, even if you pay your balance in full each month, it will show as being maxed out on your report. Under most credit card agreements, they may reduce your limit, cancel your account, or raise your interest rates at any time when they become concerned about your ability to pay it back.

8. Pay It Late – When you make a late payment, you trigger many bad possibilities. First, you will drop your credit score by as much as 50 points. Second, that credit card, as well as all of your other cards may increase your interest rate to their “Default Rate”, your interest rate on all of your cards could increase from a low rate to in excess of 40% each. Under the universal default provision, contained in your credit card agreement, a default on any of your accounts, triggers this provision. As your monthly payments skyrocket, your ability to obtain credit diminishes.

7. Take Advantage of Retail Card Offers – Discounts for new credit applications or no interest, no payment financing is a great deal. These offers can drop your credit score by tens or even hundreds of points overnight. When you apply for credit, your score drops. When you use the retail credit, you are usually only approved for slightly more than the amount of your initial purchase. This way, you can get credit and max it out at the same time. This is a double whammy, you lose points for asking for credit as well as using it.

6. Get that Free Souvenir. When you are at a sporting or other event, apply for the cards that give you sports memorabilia such as duffel bags, towels, or hats. Even better, get the card with your favorite stock car driver’s picture on it. That $1.00 souvenir is easily worth a 50 or more point drop in your credit score.

5. Use Finance Companies/ Payday loans. Rather than using your card, go to a finance company or a payday loan. Not only will you get to pay much higher interest rates, up to 99.5% per year, you can make yourself look even worse to other lenders. The credit bureaus consider the amount of credit as well as its source. Simply put, people who use finance companies and payday loans are far more likely not to pay their bills than those who use banks and more legitimate credit.

4. Be Careless With Your Identity. If you aren’t doing a good enough job wrecking your credit, there are plenty of criminals who are delighted to help you do it. Don’t shred important documents, make sure your checks have your drivers’ license number and social security number printed on them, ignore your credit report, and mail all of your payments from home. Also, respond promptly to e-mails requesting your personal information from any bank or financial institution, especially ones written in poor English or those from institutions where you have never done business.

3. Out with the old, in with the new. Cancel your older cards, and those for which you have a good payment history. The credit bureaus look at the age of an account and the length of good payment history when assigning a score. Simply put, longstanding accounts with good history give you more points than new accounts with bad history.

2. Apply for lots of credit at once. When planning a major purchase, go all the way. If you are looking to get a house, you might as well apply for a new car loan, student loan and some credit cards as well. Each time you apply for credit, the lender requests a credit report. Multiple inquiries made within 30 days from the same industry count as one inquiry. Inquiries from other industries also count. Each one can lower your score by as much as 30 points, so make sure to ask for as much credit from as many different industries as possible at once.

1. Quit paying your bills. Wait until your accounts go into collection before dealing with them. Better yet, make your creditors sue you before paying. It can take creditors several months or years to sue you and they may be willing to settle for less money. However, public records, such as judgments and bankruptcies can harm your credit for up to 10 years. Personal Finance News