5 Credit-Killers That Can Cripple Your Finances

By Dawn Handschuh, Personal Finance Writer Archive

For many, the world of credit scoring is a mysterious, powerful force that can be your hero or villain. A good credit score can unlock a galaxy of lower interest rates, higher credit limits and approved loan applications.

But what makes or breaks a score? Keep the dark side of "The Force" at bay by avoiding these credit-killers:

1. Late payments
Missing just one payment could send your score into a 100-point freefall. A responsible bill-paying history is, like Luke Skywalker's light saber, a formidable weapon, one that contributes 35% to your credit score calculation.

2. Spending sprees
While unbridled spending may benefit the economy, it'll damage your credit history and score faster than you can say "Galactic Republic."

The ratio between your debt and available credit accounts for another 30% of your score. Max out your cards, and your ratio heads for a black hole.

Best bet: Keep your ratio under 30% (less than $3,000 on a card with a $10,000 credit line). Beyond spending less, try to improve your ratio by seeking to raise your credit limit on an existing card.

3. Cleaning house
It's good to get rid of dead wood, right? Only in your backyard.

If you have old credit cards you rarely use, don't close the accounts. This will only spike your debt-to-credit ratio.

Your credit history longevity contributes 15% to your score. Creditors value longevity. Since they average the age of all your cards, stockpile the old ones. Use them occasionally so they don't become inactive.

4. Too much plastic
Don't become a credit card collector, regardless of the lures. A flurry of card applications unnerves lenders, who worry you'll over-indulge. New credit accounts for 10% of your score.

5. Being a credit coward
Most life milestones (college, home-buying) require loans to achieve your goals; you can't get one without a credit history.

Lenders prefer a balanced mix of revolving debt and installment debt. If your credit cards are multiplying but installment debt is non-existent, creditors consider that lopsided. Your debt mix contributes 10% to your score.