5 Easy Mistakes That Will Damage Your Credit

Building a solid credit history is one of the most important things you can do from a financial perspective. By doing so, you'll be able to borrow money more easily in the future and, more importantly, be able to qualify for a lower interest rate when buying a new home or car. Thus it is important to know what things will quickly ruin your credit if you are not careful. Here are the five easy ways to damage your credit:
Closing credit card accounts. By closing credit card accounts, you reduce your amount of available credit. A third of your credit score is a measurement of the amount of debt against your available credit limit. If you have to close accounts, make sure they are your newest accounts, as long-term accounts help bolster your credit score the most.
Not using your credit cards. Another easy way to ruin your credit score is to stop using your credit cards. Instead, use each of your cards at least once or twice a year. The amount doesn't matter; you can simply fill up your car with gas or buy a pack of gum. By keeping your accounts active, you insure ]the credit card company will continue to report your information to the credit bureaus and keep your account open.
Running up high balances. According to Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, "FICO does want to see a lot of credit, but it would rather see many low balances on several cards rather than one large balance." The closer you reach your limit, the higher your debt utilization ratio is-a large factor in determining your credit score, which can sting your credit score if you're close to maxing out your card each month.
Applying for new credit cards often. Applying for a new store credit card every time you set foot in your local mall is not a good idea. New credit accounts lower the average age of your credit history, and each application triggers a hard inquiry on your credit, which slightly dings your credit score. So, don't fall for a clerk's pitch to get you to open a store credit card by offering a relatively small percentage off your purchase.
Ignoring or missing errors on your credit report. Check your credit report at least once a year and have the credit bureaus fix any inaccuracies. You can visit AnnualCreditReport.com to get the free annual credit report consumers are entitled to. If you find errors on your report, don't assume they will get worked out eventually; it is up to you to contact the bureaus and get it straightened out.

7 Characteristics of Debt-Free People

Family #1 manages to pay off $40,000 in debt in two years on a $35,000 annual income. Family #2 makes $100,000 a year but can’t seem to make the slightest dent in the same amount of debt.
Why is that?
Obviously, the second family has a spending problem. They make plenty of money—more than enough to pay off that debt in two years. But they have so much money going out, they can’t keep their head above water. Whether it’s in the form of an overbearing mortgage, credit cards, a hefty car payment or just making poor choices like eating out every night, their debt keeps them from making progress.
So all of their income gets sucked up by other stuff, which leaves them making minimum payments on their debts and never gathering any momentum. It’s a difficult, stressful way to live.
At some point, people who become debt-free decide that enough is enough. Their old lifestyle wasn’t working, and they’re ready to make some serious changes. It’s like they have a personality change, but that’s not what really happens. All they are doing is rediscovering aspects of their personality that have always been there.
So what are some of these traits of people who get debt-free?

They are wise.

People who decide to ditch debt for good realize that debt isn’t a tool. While their FICO score may go down, their net worth goes up. They treat debt like it’s a skin disease—which isn’t a bad idea. Don’t you wish you could wipe away debt with a little Benadryl cream?

They are patient.

Someone who really wants out of debt can walk right past the shoe aisle or the flat-screen TV aisle without blinking. Why? Because they know all of that stuff can wait. Impulsive, impatient purchases are debt’s best friend.

They are confident.

People who are getting out of debt don’t care what others think. You know you’re on the right track when your broke friends are making fun of you. Getting out of debt can require drastic lifestyle changes, which means you’ll never succeed if you aren’t mentally prepared and confident in your decision to find financial peace.

They are goal-driven.

No-brainer, right? Getting out of debt is a goal in itself, so of course people who want to get out of debt are goal-oriented. But the catch here is that these people do more than just set goals—they map out how they plan to get there. That’s what Dave’s Baby Steps are all about—small goals that lead to the one giant goal of being debt-free!

They are responsible.

Getting out of debt takes a sense of responsibility and maturity—two traits that match up well with patience. And maturity has nothing to do with age. Some 50 year olds still treat money the same way they did when they were 20. They just have more of it now. When you’re responsible, you want to get out of debt as fast as possible so you can begin saving, putting money into a college fund, investing, and paying off the mortgage early.

They are not materialistic.

Becoming debt-free isn’t about stocking a garage full of cars and living in an eight-bedroom house. The purpose is to change your family tree for generations to come, helping others along the way. Materialism can affect any of us—rich or poor. It’s all about how much importance we place on stuff.

They are willing to make sacrifices.

Eating out. Cable. Going to movies every week. These are the types of things that might have to go while you’re getting out of debt. But keep in mind: Budget cuts are just temporary. When you’re debt-free, you can begin slowly adding those things back into your lifestyle.
The bottom line? You have to be motivated and do something about it over time.
If you want to get out of debt, you can get out of debt—no matter how much money you owe. Even if you don’t think you’re particularly strong in all of these characteristics, you’ll be amazed at how your perception of “wants” and “needs” will change once you start the Baby Steps.
When you’re motivated, passionate and even a little angry, you’re more than willing to do whatever is needed to find financial peace. Everything else will take care of itself.
What are characteristics you’ve noticed in debt-free people that you’d like to mimic? Leave a comment to share your insight.