Remember the good old days, way back in 2006, when the streets were paved with credit-gold as far as the eye could see and credit cards rained from the sky? Even the credit-destitute were treated like kings by the credit card companies and courted with lavish offers of unlimited credit.
Here in the future, the world has changed. Banks claim they want to lend money, but really they'd prefer to buy other banks with TARP money.
For now, credit issuers aren't sure they want to lend money to people who need to borrow it, a situation somewhat analogous to the old Groucho Marx axiom, "I don't want to belong to any club that will accept me as a member."
And woe betide those who ask for loans with glaring blemishes on their credit reports. An unpaid collection is apt to be regarded like a cockroach in the consommé.
These days, wrecking your ability to get credit is about as easy as blowing over a house of credit cards.
Credit disaster
Making some of the following mistakes can ensure that lenders will need a hazmat suit to handle your credit report.
7 ways to be credit-stupid
- Close credit card accounts
- Let credit cards collect dust
- Run up high balances
- Apply for new credit repeatedly
- Don't pay fines or noncredit-card bills
- Ignore mistakes on your report
- Make late payments or skip them
Close credit card accounts
A quick way to guarantee that your credit score plummets faster than Lindsay Lohan's career is to slice away your available credit by closing accounts.You see, credit scores are not built around common sense. Doing away with unused lines of credit would make sense to a human being, but not so much to a credit scoring model.
"Many of the things that can lower your credit score are kind of counterintuitive," says Melinda Opperman, counselor and vice president of community outreach for Springboard, a consumer counseling organization.
When you close an account, it no longer adds to your total amount of available credit.
"There is a big chunk of your credit (score) that is factored on the amount owed -- 30 percent of your credit score. So one-third of your score measures the amount of debt against the credit limit," says Opperman.
What affects your credit score
Without changing your level of debt, lowering the credit available to you throws the ratio of debt to available credit out of whack.
For consumers with very low balances, closing newer credit accounts, slowly, can make sense -- especially if the cards sport high interest rates or charge annual fees.
But having too much credit will rarely be a problem.
"In years past there was kind of a myth that said if you have just way too much credit available, you have the risk of being potentially overextended because you could access that much credit right away," says Opperman.