Personal Debt Solutions Canada - Avoid Damaging Your Credit

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How to Avoid Damaging Your Credit

Simple Ways to Avoid Bad Credit

Maintaining good credit can be a challenge for some, but everyone can take charge of their finances and learn how to avoid the pitfalls that affect their credit rating. By understanding how to repair your credit from the previous section you probably know some of the things you should avoid to maintain your credit rating. Having a good credit rating allows you to borrow money for buying a new home or purchasing a new automobile. Though we instruct you to limit your borrowing we understand that everyone eventually needs to use credit so it is important to learn how to get it, maintain it and get the best lending rate from your good credit record.

Here are five other things that can damage your credit rating:

  • 1. Applying for Lots of Credit - Many people apply for a credit card in every store that they are offered. A large number of "hard pulls" (formal inquiries on your credit for the purpose of obtaining new credit) can make you seem like a bigger risk to lenders. Furthermore, being declined for credit, such as a new car loan or consolidation loan, may also damaging to your credit rating.

    It could appear to potential lenders that you are having difficulty managing your money and that financial trouble could be coming. Furthermore, if several of these new cards/loans are approved at once, you will have all this credit, but insufficient income to handle it.

  • 2. Too Much Available Credit - If you have a number of credits cards and a huge amount of "room" on each of those cards, you might think that would demonstrate responsible use of credit. However, having a huge amount of unused credit available won't necessarily endear you to a lender when you are applying for a loan.

    The lender may see all the available credit and think that if you max out on all this credit, you are going to have way too much debt in comparison to your income. Therefore, adding another loan could be quite risky for them.

  • 3. Divorce - If you and your ex-spouse signed a credit agreement jointly, be aware that you may be responsible for any debts incurred by your ex, even after you separate and even if the debts were divided as part of the divorce agreement. The lender doesn't care that you are divorced and as part of the settlement, the ex agreed to pay that credit card off. If your spouse isn't paying, then it's your responsibility to pay the entire balance (not half as many people think) unless the lender has formally released you from that debt.

  • Not Using your Credit Card - Some debtors think that hiding their credit card away and rarely using it maintains good credit. However, these people fail to realize that part of your credit score is based on your payment history, so not using your card could actually hurt you as the lender can't adequately establish that you are a good payer. In fact, showing repetitive payments demonstrates that you are a better risk for the creditor.

    In fact, a strategy for people with damaged credit can be to obtain a secured credit card (you advance the lender cash to hold on deposit) and make regular monthly payments to rebuild their credit score.

  • Parking Tickets, Utility Bills and Other Fines - If you don't pay parking tickets, phone bills or even library fines, these creditors will eventually want to collect. If it ends up in the hands of a collection agency, even seemingly harmless debts are going to affect your credit score.

If you have bills, loans and/or credit card balances and can't make ends meet, contact any one of our members who can outline your debt repayment options. Bankruptcy is not the only answer. We can customize a program to suit your situation.

Keeping your bills up to date is important when trying to maintain your credit rating. Click here to learn 8 things that can help repair your credit rating