When we go through life, the credit score we have can be the difference of getting approved for our loan, getting into our dream apartments or being forced to settle on a less-than-ideal one, or even being given consideration for certain positions. Therefore, it's essential to understand the common credit mistakes to avoid and how to fix them. This article will highlight 10 of the most common credit mistakes and provide practical tips on how to address them.
- Closing old credit card accounts
Closing old credit card accounts can negatively impact your credit score. Keep your old accounts open if you want to build up a longer credit history.
- Using Payday Loans
Using payday loans can be a costly mistake. These loans are often associated with high interest rates and fees that can quickly spiral out of control.
- You may not be paying attention to balance transfers
Balance transfers can be a useful tool for consolidating debt, but they can also come with fees and high-interest rates. Pay attention to the terms of any balance transfer offers.
- Late Payments
Payment of bills late can harm your credit score. Payments that are late can remain on your credit reports for up to 7 years. You can set up automatic payments and reminders to make sure you pay on time.
- Why You Should Not Build an Emergency Fund
Not having an emergency fund can lead to missed payments and damaged credit. Build an emergency fund to avoid this mistake.
- Do not check your credit report
Regularly reviewing your credit report is important to ensure that there aren't any errors or fraudulent activity. Each of the major credit bureaus will provide you with your free credit report once a calendar year.
- You can't get too much credit at once
If you apply for many lines of credit at once, it can damage your credit score. You can avoid this error by spacing out the credit applications.
- Credit Repair Scams: Beware!
Credit repair scams are tempting, but often they come with high fees for little or no results. Avoid these scams if you work with reputable agencies to repair your credit or improve your credit score.
- Failure to repay a loan
Your credit score can be severely affected by defaulting on a debt. Contact your lender to talk about options for repayment if you are struggling to pay.
- What to do if you are a co-signer without a plan
Being a co-signer without a plan can put you in a difficult financial situation. Have a plan for handling payments in the event that the primary borrower defaults before co-signing.
By avoiding the common mistakes that people make with their credit scores and by taking action to improve it, you will be in a much better financial situation. This will not only help you qualify to receive loans with better interest rates but also improve your financial health.
The Most Frequently Asked Questions
What is a high credit score?
A credit score of 700 or more is considered good.
How often can I check my credit rating?
At least once a calendar year, you should review your credit report.
Can early repayment of a credit card affect my credit score?
Paying off a loan early can actually help your credit score by reducing your credit utilization rate and showing lenders that you're responsible with credit.
Can I improve my credit score quickly?
It takes time to improve your credit score, but you can see the results in a few short months by paying off your debts and fixing errors on your report.
What should I be doing if I discover an error in my credit report?
You can dispute an error you find on your credit file by contacting the credit bureau responsible for the error, as well the lender who supplied the incorrect information.