Everyone is always looking for the magic bullet to perfect their credit score and make them attractive to prospective lenders. Very few people take the time to research common credit mistakes which can take years to fix. Understanding ways to ruin your credit is just as important as understanding ways to improve it. Avoiding mistakes and maximizing advantages can boost your score quickly, giving you the opportunity to lower interest rates and get better offers.
Forgetting to make a payment
This is especially easy for people who use checks to pay things. In the high-tech world, remembering to write and mail a check is more difficult than it used to be. Some lenders, especially small banks, don’t give the option to pay online, which can lead to big hit on your credit score if you forget to mail the check or run out of stamps.
To avoid this, use automated reminders on your phone or computer. When you write the check, put it in the mail box immediately, or leave it on the dash of your car so you’ll see it in the morning. Find a way that works for you and leave plenty of time for the check to make it to its destination.
Exhausting All Of Your Available Credit
Many people spend up to their credit limits each month by using their credit card instead of their bank card. This is a bad idea. Your credit score depends on your debt to credit ratio, and having an average monthly debt equal to your available credit can tank your credit score faster than an iceberg striking the titanic.
It may seem counter-intuitive, but lenders want customers who don’t have a lot of debt even though they make the most money off of people with the highest balances. The reason is that someone with very little debt is more likely to pay their bills than someone with a lot of debt whom only makes the minimum payments.
Canceling Cards You Don’t Use
Canceling old cards may seem like a harmless habit, but it can actually really hurt your credit score. Up to 15% of your credit is determined by the length of time you’ve held a particular line. Dismissing old cards you no longer use can take away your bonus for being a long-time patron. If you don’t use an old card, lock it up in a filing cabinet or shred it, but don’t cancel it.
Signing Up For Every Card Offer That Comes Your Way
Sure, you’ve heard that having a lot of available credit increases your credit score, but applying for too many lines of credit in too short of a time span can actually decrease your score. Look at it like this, if you lent someone in your family money, you might get nervous if you heard they went and hit up every other relative for cash as well. If they’re looking for money from anyone who will lend it, the odds of them paying you back instead of Uncle Buck starts to look pretty slim. It’s best to only apply for one or two cards max per year.
Applying For Too Much Credit Too Soon
The people with the best scores have a large variety of debt. They carry a car loan, a couple of credit cards and probably a mortgage. Rushing to be like the Jones’ and their beautiful perfect credit is one of the worst things you can do. Every time you apply for a line of credit, your score takes a hit. Too many applications means too many hits, which means a low score and less lending opportunities.
Knowing the five most common credit mistakes is the key to avoiding them. Learn from the mistakes of others and utilize this knowledge to make better credit decisions. You too can have a great credit score if you try.