How Your Buying Habits May Impact Your Credit Score

Many things directly impact your credit score, like the number of credit accounts you currently have open, your balances, available credit and how promptly you pay the bills, according the the Federal Reserve Bank of San Francisco. Your buying habits indirectly affect your score because they influence how you handle your finances. Your credit rating suffers if your finances are handled improperly because of your spending.

On-Time Payments

Payments are the most important part of your credit score, as the MyFICO credit score information site explains that more than one third of the total score is based on whether you pay credit-related bills on time. Buying so much that your high balances force you to skip payments lowers your score. Longer delinquencies have more negative impact.

Payment Amounts

Your credit score may drop lower even if you pay your bills every month if you are only able to send the minimum required amounts. Much of your minimum payment is channeled onto the interest, which is billed every month, the Motley Fool financial site advises. It takes years to pay off a high account balance if you do not send extra money. Your score is harmed when you owe large amounts on your credit cards.

Credit Limits

Credit cards are revolving accounts, which means you get a set credit line and can buy things until you reach it. Your credit score is partially based on the ratio of your available credit and your balances. It goes down if you have reached the limit on most or all of your cards, according to MSN Money writer Liz Pulliam Weston, because lenders want to see a large gap between your credit limits and total debt.

Charge-Offs

Excessive buying that keeps you from paying your bills can lead to charged off accounts. Pulliam Weston explains that credit card issuers write off balances after about six months without a payment. You are not excused from paying a charged off account. It pulls down your credit score, and the original lender can sell it to a third party debt collector to pursue repayment. Charge-offs do not get erased from your credit reports for seven years.

Bankruptcy

Debt can become so bad that you face bankruptcy if you do not rein in excessive spending. Most negative incidents appear on your credit reports and affect your score for seven years, but the Federal Trade Commission (FTC) warns that bankruptcy remains on your records for 10 years. You must undergo counseling before filing, and at the conclusion of your case. The post-bankruptcy counseling includes information on budgeting and developing better spending habits, the FTC explains.