I have a confession to make.
I kissed my 750+ credit score goodbye about two years ago. There, I’ve said it. A CPA, a “numbers” person who should know better, and I screwed up badly.
I didn’t do it intentionally; unfortunately, life (and in my case, divorce) got in the way and making wise financial decisions went out the proverbial window.
It’s funny—you don’t appreciate your credit until you lose it–and when you lose it, it could take years to regain.
Yes, I destroyed my credit…not good for anyone, much less a CPA but…
This is GREAT for you; why, you ask?
Because you get to be the beneficiaries of my stupidity…to learn from my mistakes. Now that I’ve traveled the road of credit destruction, I know WHAT to do but, more importantly, what NOT to do to keep your credit intact…
Making these mistakes has catapulted me far ahead of others in the financial field…forced me to become smarter with money and credit…made me an expert in the dos and don’ts of credit.
Now, I’m going to share all that I’ve learned with you, so you don’t make the same mistakes I’ve made.
Here are 5 “Don’ts” that will help keep your credit score high (and appealing to current and future creditors):
1. Closing Credit Card Accounts
Wish I’d known what a mistake it was to close my Macy’s credit card account; I rarely shopped there so I just decided one day to cut up the card and send it with my final bill.
Oops…what I didn’t realize at the time is that I’d flushed my great credit history with Macy’s right down the drain; all those on-time payments I’d made over the years helped to maintain that 750+ credit score. When I cancelled the card, that payment history was…history.
A better solution would have been to keep the card and make a small purchase every month or so (and pay on time, of course) so I could have maintained that great score.
2. Becoming an Authorized User on Someone Else’s Credit Card Account
Mistake #2…when my own credit became trashed, I asked my husband to add me to his account, since I couldn’t get a card of my own; I didn’t want to end up stranded in some backwater town with no credit card, in case my car broke down.
Everything was going fine until my husband was laid off and was forced to stop paying on his card. While I wasn’t legally responsible for the payments (and the credit card company couldn’t come after me), the fact that I was an authorized user contributed to the decline in my credit score.
Another lesson learned.
3. Carrying Too Large a Balance in Relationship to Your Credit Limit
I never realized this was another credit red flag—there’s even a fancy name for it: overutilization. Here’s an example: Let’s say your Visa credit card has a $10,000 credit limit. You decide you want to install a hot tub in your background and use the card to charge your $9,500 purchase (must be some hot tube for that price!)
Another big no-no…the credit card company considers you 95% utilized at this point and your credit score takes another beating.
Make sure that your loan-to-limit balance is as low as possible. There’s no magic percentage; I did manage to get a prepaid credit card with a very small limit (to help rebuild my credit) and I try to keep my purchases at no more than 20-25% of the total credit available.
4. Defaulting on Your Credit Cards
As you might imagine, this is probably one of the worst things you can do; trust me, I know.
After my divorce in early 2008, I ran up some pretty hefty credit card debt for a business I was starting. Well, needless to say, things didn’t work out the way I had planned and I found myself in an impossible situation, unable to pay off the debt. I had no choice but to stop making the payments.
What I didn’t think about at the time was that, in addition to destroying my credit, I’d left myself unable to refinance my home mortgage or shop around for cheaper auto or home insurance.
Because I no longer had stellar credit, I was stuck.
Even though I felt I had no other option at the time, walking away from my credit card balances has proven to be the most expensive lesson of all.
5. Late credit card payments
Not sure how much I need to elaborate here—string enough late payments together and consider your credit trashed.
End of story.
As hard as it was for me to admit that I made a few of the mistakes I mentioned in this post, I sincerely hope that the information I’ve shared will prevent you from destroying YOUR credit.
Believe me, it’s a long, hard road back.
After 7 months of working with a credit restoration specialist, two of my scores are finally back in the low 700s and the remaining is just under 700.
I’d love for you to share your own story in the comments. What mistakes have you made that have affected your credit? How long did it take for you to restore your credit? What advice can you give others to avoid a credit disaster?
CMA (Cover My Assets) Disclaimer: The information in this post is not intended to represent tax or legal advice. Contact your own tax preparer, CPA or tax attorney to determine whether this information applies to your tax situation.
Not your typical buttoned-down, geeky accountant (as evidenced by her penchant for wearing purple nail polish), Diane Aksten has been a practicing CPA since 1989. Aside from an ill-fated foray into real estate and eight years working as a tax manager for an AT&T subsidiary, most of her experience has been in the public accounting arena, assisting individuals and small businesses with anything related to federal, state and local income taxes.