If you have plans to one day buy a house or a new car your credit score will determine how easy that process will be for you. Having a good credit score opens up better interest rates and means you’re unlikely to have to deal with being rejected for a loan. Thus, it’s important that you aren’t accidentally making any mistakes that might affect your credit score. Here are some important mistakes to avoid:
Not Paying Your Bills On-time
The easiest way to not damage your credit score is to pay all of your bills on time. While this may seem simple it’s very important that you don’t forget about even the tiniest payments that you might owe, such as library fines, parking tickets, or medical bills. While some places might not take your lack of payment too seriously, if any payments that you owe get sent to a collection agency this will damage your credit as these accounts will stay on your history for seven years.
Not Checking Your Credit Reports
Forgetting or not bothering to check your credit reports from each of the main reporting agencies every year could seriously impact your credit. Checking your report is vital to ensuring that no mistakes have been made that are negatively affecting you. If you find a discrepancy on a report contact the credit bureaus right away. It can also be a good way to notice and correct any bad habits you might have that are hurting your score.
Opening Too Many Credit Accounts at Once
Before you decide to open multiple credit lines at once think about how this will impact your credit score. Lenders like to think that you’ll be able to pay them back on time without any hassle, so if you’ve opened multiple lines recently they will start to think that you might struggle to pay them all back. Try to spread out the loans and credit cards you want to take out over a number of months.
Maxing out Your Credit Cards
Reaching your spending limit on any or all of your credit cards will damage your credit score. Known as your ‘utilization ratio,’ 30% of how your credit score is calculated depends on how much of your available credit you are using. While having a lot of credit open to you helps your score, spending too much of that credit is never a good idea. The smartest way to use a credit card is always to only spend what you know you can pay off before your next billing cycle.
Closing Credit Card Accounts
Since part of your credit score relies on how long you’ve had credit for closing old accounts will hurt your score as that account will then fall off your report meaning your history won’t show to be as long. In addition it will hurt your utilization ratio to close some of the credit that is available to you. If you feel it’s necessary to cut down on your credit accounts consider closing newer accounts first so as to not impact your score as seriously.