Most Common Credit Mistakes To Avoid

Most Common Credit Mistakes To Avoid

Your credit score is a three-digit number that carries a lot of power. Unfortunately, many people fall into credit pitfalls that are hard to dig out of. 

A great credit score gets you the best interest rates and terms on financing. A low credit score leaves you with denied loan applications or, if approved, the highest interest rates. It’s important to be aware of the most common credit mistakes people make and how to avoid them.

1. Overextending Your Credit

You get a nice, big, juicy credit line – how exciting, right?

Don’t get too carried away. You shouldn’t use your entire credit line because your credit usage or utilization rate makes up 30 percent of your credit score. A good utilization rate helps your credit score and a bad rate hurts it.

Aim for a 30 percent utilization rate. In other words, don’t have more than 30 percent of your credit limit outstanding at one time. 

2. Missing Payments

It may not seem like a big deal. You miss a payment, so you pay the late fee and move on, right?

Wrong. That late payment hurts your credit more than you may realize. If your payment is more than 30 days late, your credit score falls. Your payment history makes up the largest portion of your credit score (35 percent).

On-time payments help build your credit score more than anything else, so take this seriously.

3. Applying For New Credit Too Often

Applying for new credit hurts your credit score too, especially if you do it too often. Many people apply just for the sake of it or to get a discount at a retail store. They may not end up opening an account, but the inquiry is there and affects their credit score.

Before you apply for new credit think about whether you need it or not. If you’re applying just because you got an offer, but you really don’t need it – don’t do it. Save your inquiries for those times you need the credit. You’ll be glad you waited.

4. Not Checking Your Credit Report For Errors 

It is important to routinely check your credit report for accuracy. If you don’t, you could have incorrect/negative information dragging down your credit score without you knowing it. 

You can get a free copy of your credit report once per year from  Annual Credit Report.com.

Review the credit report carefully. Look for errors in your accounts and fraudulent activity too. Report any errors to the reporting agency immediately and contact the creditor as well. Provide proof of the mistake. The credit bureau has 30 days to respond to your request.

Services like Credit Karma provide free credit reports and monitoring so you’ll be notified of any changes to your credit history or suspicious activity that could be fraudulent.

Avoiding the four most common credit mistakes is crucial to obtaining and maintaining a good credit score:

1. Overextending your credit 

2. Missing payments 

3. Applying for new credit too often

4. Not Checking Your Credit Report For Errors

The effort to create a good credit score will pay off when you need a new loan, credit card, or buy a house. It’s only a three-digit number but it holds a lot of power!