Your credit score may not seem important to your everyday life. It can’t get you to work or pay for your groceries and it can’t put a roof over your head. But it can determine how easy these things are to accomplish.
Anyone from a potential boss to a home mortgage lender can use your credit score to determine if you’re responsible and financially sound. And if you have a bad credit score, you may not get the car, job or home you want. So it’s worth paying attention to. There are many things you can do to improve your credit score, the most important of which are avoiding these common mistakes.
Holding too Many Credit Cards
Credit card companies are master marketers. As soon you apply for one credit card, they’ll all send you an offer. But you don’t have to accept them! The more credit cards you have, the more tempted you’ll be to spend and the deeper you’re in debt the worse it is for your credit score. It’s important to start a credit history and opening one or two cards can be a good way to do that, just don’t over extend yourself. Which brings us to mistake number two.
Maxing out a credit card is never a good idea, yet it is a common mistake that so many people make. Just because you have the available credit on your credit card or private loan account does not mean you should use it. A good rule of thumb is to keep your balance between one and twenty percent of your overall available credit. This shows lenders that you are using your credit but don’t rely on it.
It is never a good idea to skip a credit card or loan payment. Even late payments can have a negative impact on your credit score and result in additional fees. Every time you pay late or skip a payment the credit card or loan company sends a notification to the rating agencies. The agencies then record this infraction on your credit report and it doesn’t go away for six years. Think of all the credit cards, car and home loans or jobs you might want to apply for in the next six years—every single one of those companies will be looking at your credit report. And they may decide to pass you over for someone else with a better credit history.
Allowing Errors on Your Credit Report
One of the most common mistakes people make is failing to monitor their credit history. The agencies get things wrong all the time. They may receive bad information, they may make a clerical error, or someone may open a credit account under your name without your permission. And if you don’t fix these errors, you’re on the hook. You can use credit monitoring programs that keep watch year-round or order your credit report and check the history yourself. When you find inaccuracies report the errors to all of the credit bureaus immediately.
The Effects of a Bad Credit Score
Late or skipped payments and too many credit cards are seen as risky and irresponsible behaviors by lenders, credit card companies and employers alike.
When creditors and lenders see late or skipped payments on your credit report they assume you will repeat this pattern with them. That makes you a risky customer. And since lenders and creditors don’t like taking risks, they will either deny your credit or loan application, or they will present you with an offer at a much higher interest rate. This means you’ll end up paying more for the money you borrow than you would otherwise.
Likewise, a current or potential employer is also less likely to give you more responsibility if they see you were irresponsible in the past. This could make it difficult for you to find new employment or progress in your current job.
As you can see, your credit report touches almost every aspect of your life. Mistakes are inevitable, but avoiding these four will help you stand on solid financial ground.