FTC: This post is not sponsored and I am not a financial advisor.  All thoughts and weird opinions are my own. 

When I first tried to but a house when I was 25 years old, my credit score was fine, but it wasn’t anything to brag about. I also wasn’t getting the best interest rates, and definitely didn’t get approved for the amount of money I thought I should be. Little did I know… I knew nothing. 

Five years later after, I finished paying off my student loans and bought my first house with an 830 credit score. I learned how to navigate the categories that effect your credit score very well. And what happened after the ink dried, and my closing was complete? My credit score took a minor hit and dropped me from the 800 club back into the high 700s. 

With this list of the four things that are ruining your credit score, I’ll explain which one affected me the most, and what you can do to avoid it! 

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Things That Are Ruining Your Credit Score

4 Things That Are Ruining Your Credit Score

1. Late Payment Sent To Collections

Having your debt sent to a collection agency, is absolutely a detriment to your credit score. Even worse, a lot of times when you’re sent to collections, it can take some ingenuity and elbow grease to get you off of it. Paying off the debt doesn’t automatically remove it from your credit report. 

How to Avoid Collections:

Obviously the easiest advice to give about how to avoid collections is to pay your debts/ bills on time. You’d be surprised by the things that are sent to collections and have the capability to ruin your credit. Parking tickets, hospital bills, utility bills… all of it can get sent to collections if you don’t pay what you owe.

If you find out that you can’t make a payment, it is best to set up a plan with the company rather than ignore/ avoid it. This is when they get petty and send you off to collections. You can also gain a side hustle or two to increase your salary and struggle less to pay off your debts. Easier said than done… but it is doable.

2. High Debt To Income Ratio

Your debt to income ratio dictates how much money you are given on future loans such as mortgages and car loans. Besides this a low debt to income ratio shows that you are more responsible financially on paper. This means companies are more likely to give you better interest rates, and higher amounts of money. 

How to Avoid High Debt To Income Ratio

When you buy a house, a car or graduate from college your debt to income ratio is usually skewed towards the higher side. This is what caused my credit score to take a bit of a hit. When I paid off my student loans my credit score thrived because my debt to income ratio was now low. I was making money and had no debt. Once I signed my mortgage that ratio was flipped on its head. So without doing anything else besides move, I shifted my score negatively. In order to avoid this or have it impact your credit minimally, you should focus on paying down your debts as quickly as possible. The more debts you pay off, the lower your ratio will go and the higher your credit score will rise.  

3. Maxed Out Credit Card Balance

This goes along with the previously mentioned thing that’s ruining your credit score. If you max out your cards you are going to have a very high debt to income ratio. That will greatly impact your credit score in a negative way. 

How to Avoid Maxing Your Credit Card

To calculate your credit utilization take your balance and divide it by the amount of credit you have on that particular credit card. You should not be using more than 30% of your credit. Another rule of thumb you want to keep in mind is to pay off your credit cards within the month to avoid interest and over spending. If you know that you have to pay the balance by the end, this will help you spend less. Low credit utilization helps boost your credit score, and low spending helps you boost your savings. Win win! 

4. Low Credit Account Variety

Have you ever heard the saying “no credit is bad credit” . If not let me explain why that saying is a thing. If you don’t have a variety of credit accounts you do not seem credible or responsible. This means that other creditors don’t want to loan you money or provide you with good interest rates. By having credit accounts in good standing open for long periods of time, your credit score will benefit and so will your future loan requests.

How to Avoid Low Credit Account Variety

Most people worry that using credit or having a bunch of accoutns open will lead them down a rabbit’s hole of debt and over spending. And while that may be possible, you want to mix cash and credit use every month to show financial responsibility. Like I mentioned earlier, you can use your credit card as long as you can pay off the balance by the end of the month.

If you found this helpful don’t forget to share this with your friends, family, and nosey neighbors! 

Until the next time,