Habits that lead to bad credit history

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Credit Card Applications » Research » Guides » Building Credit History » Habits that lead to bad credit history

Habits that lead to bad credit history


Updated: December 26, 2012

Bad credit history could lead to a bad credit rating and poor FICO score. In the present scenario a lot of importance is given to the credit history of an individual. Whether you are looking for a bank loan, insurance, credit card or even a job, credit rating could become a very important factor. This is why individuals must try to ensure that their credit history remains above average at all times, given that there are substantial benefits for individuals with excellent credit history. Here are some of the habits that should be avoided in order to have a good credit history. Maintaining a rotating debt A lot of individuals get used to carrying an outstanding balance or debt on their credit card, month after month. As a result, they lose in several different ways. Firstly, they are charged lot of penalties such as late fee and overdraft fee when the occasionally cross the credit limit. They are also on the losing side, because outstanding balances increase the credit utilization ratio thus having an adverse effect on the credit rating of the individual. Most importantly there is a constantly accumulating interest on the debt that adds up to the principal. Therefore individuals should try to pay off their outstanding debt as quickly as possible. Missing monthly payments There is sufficient leniency as far as bill payment is concerned. For example, a credit card holder usually gets the expenditure report at the end of the billing cycle and also gets a grace period of over 20 days to pay the bill amount without any penalty. Individuals must look to pay back the bill amount in full before the due date. If they miss monthly payments, their credit rating takes a beating. Moreover, the credit card company will then be able to raise the interest rate on the credit card too which isn’t good news for the card holder either. Missing monthly payments also suggests that an individual isn’t entirely creditworthy, a pattern that those looking at your credit report don’t really favor. Shopping excessively beyond your means Part of the reason why a lot of people end up with a bad credit history is because they shop a lot and sometimes, above their means. As a result they aren’t able to pay off the outstanding balance at the end of the month. Not only do they pay penalties for crossing the credit limit or for late payments, but they also pay interest on their outstanding balance too. This interest is usually very high given that interest rates on credit cards are as high as 15% or more. It is also good to avoid shopping for rewards. Going for excessive debts Even if one pays the bills on time, having high outstanding balances close to the credit limit will affect the credit rating adversely, because it depends on credit utilization ratio. This is the ratio of outstanding balance to credit limit and the more one uses the credit available, lower will be the credit rating.

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