Bill and Sharon Smith recently tied the knot in wedded bliss. They adored their little studio apartment in the middle of town…for about one week. The next-door neighbors partied – a lot. Cars honked their horns at all hours of the night. The landlord liked to raise the rent. It was time for a change.

The Smiths decided they would like to look into purchasing their own home in a smaller town. They spent a lot of time looking through Homes For Sale catalogs. They drove through promising neighborhoods and went to open houses. They spent every weekend looking for the perfect house.

One bright summer morning after several months of searching, they found the perfect house: a cute two-bedroom bungalow nestled in a grove of trees on two acres of land. It was a for-sale-by-owner and the price seemed reasonable. The Smiths fell in love.

Bill and Sharon promptly went in to speak with Jim, the loan officer. They had spent so much time house hunting that they hadn’t given much thought to pre-qualifying for a loan. The Smiths sat down and showed Jim a flyer describing the charming details of the home. They eagerly waited while the Jim pulled up a credit report. After what seemed like an eternity, Jim shook his head and handed the flyer back to the Smiths. Bill and Sharon’s FICO score was low. It would be very difficult for them to get a loan; and even if they could get a loan, the Smiths would be paying thousands of dollars in extra fees and an interest rate so high that Bill and Sharon would have difficulty making the house payments.

After Jim had sat down with the Smiths and showed them how they had ruined their credit rating, the heartbroken Smiths drove back to their tiny studio apartment in the middle of town. They were stuck without many options. Don’t make the same mistakes they did.

7 Ways to Destroy your Credit Rating

1- Make late payments. Payment history makes up a big part of your FICO score. Making late payments could drop your credit rating by 100 points and it takes a lot of effort to bring that score back up.

2- Keep high balances. If you keep your credit card balances close to their limits, it lowers your FICO score. This also means that it isn’t a good idea for you to consolodate your bills onto one credit card. Try to keep your balances under 35% of the credit limit.

3- Declare bankruptcy. A bad credit report can stay on your credit history for seven years. Lenders want to see that you are financially responsible and will pay the loan back.

4- Open a lot of store credit cards. Lenders get nervous if they see you have many open lines of credit.

5- Close down credit cards. This can actually lower your score, especially if you close down an account that you’ve had for a long time.

6- Don’t have any credit cards. You may think it is a wise idea to avoid credit cards all together, but lenders want to see that you are able to make timely payments and that you are responsible. It’s important to build up a positive credit history.

7- Don’t check your credit report yearly. Request a free credit report from one of the three major credit reporting bureaus and check for errors or fraudulent activity. The three major agencies are: Equifax, TransUnion, and Experian. If you want to be extra sure of your credit, request one from all three. www.annualcreditreport.com is the authorized website to request a free report from each bureau. The credit report is free, however, you will need to pay a small fee to get your FICO score.

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1. Why You Should Develop a Healthy Obsession With Your Credit Rating
2. 5 Ways to Talk Your Way Into Getting Better Credit Card Rates
3. 15 ways to improve your Credit score (Part 1)
4. Why raise your Fico score?
5. FICO vs. VantageScore and the Truth About Free Credit Scores