Credit seems like one of those things that should develop slowly--the fine wine of your finances. Those small actions you take every day would collect over time so that, in a few years, your high credit score would help you sail through that new car purchase, apartment lease or mortgage application.
That may be true for good credit habits. But money mistakes when you're just starting out can trash your credit score, saddling you with bad credit and making future goals harder to meet.
Consider these five ways you can ruin your credit, and how you can avoid these common missteps.
Charge it to the max
That $600, $2,000 or $5,000 credit limit can feel like free money, waiting to be spent. It's especially hard to resist when you're on your own for the first time and need so many things: clothes, groceries, a flat-screen TV or an actual chair to sit on in your new place.
But charging up to your limits on plastic can put your credit score in a world of hurt. Lenders evaluate your debt-to-credit ratio. If they don't like what they see--if you have reached your limit on one or more cards--you become a risk. Lenders will suspect you are one big expense away from being unable to pay. Experts recommend using just 10 to 30 percent of your available credit.
And they may be right! If you can't pay off your card in its entirety each month, try to keep your balance comfortably under the limit. Then once you've established a pattern of regular on-time payments, use your improved credit to apply for a balance transfer credit card with a lower APR that will help you pay down your balance sooner and qualify for even better cards.
Miss due dates
Your credit card bills may take a backseat to the other critical expenses in your life--rent, utilities and student loan payments. If you're struggling to meet those obligations, your card statement may be the last one in the pile to get paid. But late payments on credit card bills can turn your credit score into a number more resembling a bad SAT result.
If paying bills is a challenge, try to pay at least the minimum on your cards each month, on time. And begin looking for ways to cut expenses and increase your income.
Co-sign for someone else
Here's the scenario: Your boyfriend or girlfriend really needs a loan for a new car, but the bank says no way without a co-signer. You may think you're merely vouching for your soulmate's character, but you're really saying, "I'll pay if he doesn't."
You have one good possible outcome: He or she makes every payment on time, and, four years or so later, that loan is gone. But consider the other possibilities, from a crisis that makes him unable to pay (job loss, injury) to the worst-case scenario--he just walks away from the debt. You'll inherit the debt, the collector's harassing phone calls and the damage to your credit, too.
When your sweetie asks you to co-sign, offer to ride the bus with him or her instead.
Collect credit cards like Beanie Babies
You hear this once a weekend:
"If you open up a new credit card with us today, you'll get 10 percent off your purchase! That's going to save you $8 today! It takes one minute to apply!"
Your wallet already has your favorite card, a backup "just in case" and your debit card--but that $8 off sounds good too. Store and regular credit cards often come with tempting perks. But a collection of cards in your wallet--meaning you have ready access to potential debt that would be challenging to repay--can ding your creditworthiness.
Stick to the fewest possible cards you need, and select cards with perks you'll use regularly, such as one of the best rewards credit cards.
Blow off your other bills
You may imagine your credit report and score is based entirely on what you do with your MasterCard and Visa. However, it's not that simple--your habits with all your bills figure into the big picture of who you are as a borrower. If you're regularly late paying your electric bill, for example, your credit report may turn off future lenders before the power company turns off your lights!
Set up a system to pay your bills on time, or have them paid automatically from a bank account.
Use your credit cards thoughtfully, avoid unnecessary debt and pay your bills on time (that's the most important step for building a good credit score), and you'll end up with a credit history that takes you successfully into your first years of adulthood and beyond.