Easy Ways to Ruin Your Credit Score

Investor Warren Buffet once said, "It takes 20 years to build a reputation and five minutes to ruin it." The same maxim applies to good credit. Stellar credit scores don't happen overnight or by accident. Instead, you have to exercise financial discipline, sometimes for years. The reward: lenders who are willing to offer mortgages and car loans at favorable interest rates.

Unfortunately, like a good reputation, a strong credit score can easily be ruined. Here are three simple ways to devastate your credit score.

• Max out your credit cards and continually fail to make required payments. Your credit score is a number, generally between 300 and 850 (worst to best), that lenders use when deciding whether to extend credit. About 35% of your credit score is based on your payment history. Paying late or paying less than required minimums can wreak havoc on your score and may signal to lenders that you're overextended.
  
  
  
• Cosign a loan for an irresponsible friend. There's a reason your pal needs a cosigner – and it isn't due to being a good credit risk. When you cosign for a loan, the status of the loan will appear on your credit report. Adding insult to injury, if your friend defaults, you're responsible for the unpaid balance.
  
  
• Close or open credit card accounts in quick succession. Either move can adversely affect the ratio of how much you owe in relation to your credit limits. As this ratio climbs, your credit score will tend to sink. Say, for example, you have three credit cards and each has a $1,000 limit. You carry a balance of $500 on one of those accounts. That's a credit utilization ratio of $500 to $3,000 or about 17%. If you close one of the accounts, the ratio will jump to 25% ($500/$2,000). Though you haven't accumulated more debt, your credit score may be hurt.

Be careful with your credit. Negative events can impact your rating for a long time, making lenders reluctant to offer you money.