How to Avoid a Bad Credit Score

How to Avoid a Bad Credit Score
Mike Randall
By: Mike Randall
Posted: November 26, 2014's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Although good credit takes a long time to build, it can be damaged faster than you might think.

If you’re late in paying a credit card bill by even a day or two, many credit reporting agencies will penalize you for it.

The lower your credit score, the harder it will be for you to get the best interest rate on any loans you take out.

Here are some steps you can take to avoid a bad credit score and ensure you get the best loan rates possible.

1. Avoid maxing out any of your credit cards

When you use up the amount available on a line of revolving credit, it affects a percentage of your credit score. Even maintaining a high balance on your cards can have a negative impact.

A good rule of thumb is to not exceed 50 percent of your limit.

Today, banks and credit card issuers are less likely than they were a few years ago to increase your line of credit automatically, so it’s important to be extra careful with this one.

2. Pay your bills on time

This includes the obvious credit cards, department store cards and other revolving lines, but it also includes things like your utility bills, cell phone bill and even the payment to your cable or satellite provider.

These days, there is a bigger network of reporting agencies and monitoring mechanisms than ever before, so remember to never miss a payment!

“If you are having trouble paying more than

the minimum, consider it a warning.”

3. Pay more than the minimum amount due

We used to be told credit card companies liked it when we made the minimum payment because it meant more money for them, but that’s no longer the case.

The new paradigm is for the credit agencies to be afraid we are at the limit of our ability to pay, and this can affect our credit score.

If you are having trouble paying more than the minimum, consider it a warning and cut back on your spending.

4. Avoid applying for new credit lines when possible

Every time you fill out a loan application or apply for a new card, it triggers an inquiry on your credit report. These inquiries can drop your overall score by as much as 20 or 30 points.

It may not make a whole lot of sense, but that’s the way it works.

Instead, try asking an existing lender for an increase to your credit line for an upcoming purchase. This won’t be viewed negatively and you can still make the purchase you wanted.

However, opening a new credit card could have benefits, especially if your debt utilization ratio is dangerously high. Browse our list of credit cards for people with bad credit.

5. Use credit cards with zero balances occasionally

You don’t have to worry if the interest rate is higher. Simply pay it off in full when the bill comes.

Another strange fact about our credit reporting system is holding unused cards or even closing credit accounts actually works against us.

If you show you have a good understanding of how our credit system works, you’ll be rewarded for it.

By following a few simple steps, you can avoid a bad credit score and even save some money along the way.