Your credit score is a crucial factor in many financial decisions, from getting approved for a loan or credit card to securing a lower interest rate. But even the most financially responsible people can make common mistakes that negatively impact their credit scores article will discuss some of the most common credit score mistakes and what you can do to avoid them.
One of the most significant factors that contribute to a low credit score is a history of late or missed payments. Late payments can stay on your credit report for seven years, making it difficult to improve your score.
To avoid this, it’s crucial to make payments on time. If you tend to be a little forgetful like I am, setting up automatic payments can save you a lot of headaches.
2. Maxing out credit cards
Maxing out your credit cards can significantly harm your credit score. This is because the amount you owe compared to your credit limit is called your credit utilization ratio, and a high credit utilization ratio can lower your score. To avoid this mistake, aim to keep your credit utilization below 30% of your total credit limit. This is probably the most common issue we see with our credit repair clients.
Example: If you have a credit card with a $300 limit, try not to carry a balance over $100
3. Closing credit card accounts
Closing a credit card account may seem like a good idea, but it can actually harm your credit score. This is because it reduces your overall credit limit, causing your credit utilization ratio to increase. The only exception where I think it might be warranted to close a card is if you find you just can’t control your spending.
4. Applying for too many cards at once
Applying for too many credit cards in a short period can signal to lenders that you’re “desperate”. In addition to that, a bunch of inquiries in a short period of time can do some damage to your credit score. To avoid this mistake, limit the number of credit card applications you make, and space them out over a longer period.
5. Not checking your credit report enough
Not checking your credit report regularly (at least yearly) can be a costly mistake. This is because errors on your credit report can negatively impact your credit score, and you may not be aware of them unless you check your report regularly. To avoid this mistake, request a free credit report from each of the three credit bureaus annually.
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