Your present credit score rating is the result of every financial decision you have made in your life. Most of us had very little or no financial coaching at all, so we have basically been winging it as go went along. We might have made many of our decisions based on good intentions, only to watch them fall flat because we lacked certain knowledge or planned poorly. We all make mistakes, but identifying them and understanding where we went wrong will help us to avoid repeating them. Following are some of the most popular mistakes people make that could lead to a bad credit score rating.
Using Your Savings to Pay Off Debt Could Damage Your Credit Score Rating
Many people think that by tapping into their retirement fund they have found a quick and easy way to pay off debt. They may believe that if the debt is costing them 15% interest and the retirement fund is making 5%, they will be pocketing the difference. Borrowing from a retirement fund can be a practical option, but only with the right mind set. It is easy to take or transfer money from an account, but paying it back is not so easily done. Usually when people pay off debt this way, after the pressure of the debt is removed, so too is the urgency to pay it back. It is tempting to continue along with the same financial habits, which could very easily lead to going into debt again, eventually wiping out your savings and having a negative effect on your credit score rating.
Not Having an Emergency Fund Could Damage Your Credit Score Rating
Many of us have the “it won’t happen to me” mentality. Even if it does we think that we will “handle it somehow,” generally by relying on unused credit cards, taking out a loan, or using our savings. If you are living from paycheck to paycheck a sudden emergency can result in disaster for you and your family. Financial planners recommend the standard of keeping an account that you can access quickly with three months of expenses in it. Loss of employment or sudden changes in the economy could force you to use credit, drain your savings, and suck you into a whirlpool of paying off debt with more debt, with disastrous consequences to your credit score rating.
Having no Insurance Could Damage Your Credit Score Rating
Again this falls into the “it won’t happen to me category”, or the “chances are it’ll never happen and I’ll save more by not having insurance and pay cash if it does.” That’s fine if you have set up an account where you place the money you would normally pay for insurance in every month, but how many of us do that. The normal mentality is “have cash, will send.” None of us expect accidents or death, but they are a sad reality of life. Insurance protects those you love, providing for them in the event that the chief income earner is taken from them. Having no insurance places them in serious financial jeopardy, and at extremely high risk of damaging their credit score rating because of the necessity of going into debt to survive financially.
Although it takes a lifetime to build a good credit score rating, it can be irreparably damaged almost overnight. Even if your intentions are good, failing to execute could come back to haunt you. Don’t procrastinate, design and begin implementing a financial plan that will protect you, your family, and your credit score rating.
Ethel Wilson is a financial and credit specialist with 12 years experience in the banking, credit scores, and financial industry. She has advised countless clients on how to improve their credit score rating. She shares the best of her credit score information as a contributor and editor of http://www.creditscoreresource.com