Contrary to what you may have heard, your credit score not only determines whether or not you can get a credit card, mortgage, or auto loan, it’s also a critical factor in determining the interest rate you have attached to those items. It can also make or break your chances at a new job. In a nutshell, a low credit score can cost a lot of money, and cause you to miss opportunities over your lifetime.
Not everyone is aware of the many factors that determine a credit score. With that lack of awareness, it’s easy to make assumptions that seem logical, but are actually false. Acting on incorrect beliefs is a surefire way to make a critical mistake.
Here is the cheat code. Save money and make your financial life easier by avoiding these seven mistakes:
Carrying a high balance on your credit cards is counterproductive. While having a lot of debt is never a good idea, using more than 30% of the available credit on your credit cards hurts your credit score tremendously.
For example, if your credit limit is $10,000, your score drops if your balance is over $3,000. This is commonly referred to as the “utilization ratio.”
Pro tip: Keep yours under 30%.
Paying late is a huge factor in your credit score calculation. Experts estimate that payment history accounts for 35% of your credit score. Any late payments will significantly lower your score. Because creditors want you to make your payments on time, most make it easy for you by offering automatic draft services. You can also make it easy on yourself by taking advantage of these options and/or setting reminders.
If you’re struggling, contact the lender and attempt to make other arrangements. You may be surprised at how flexible the may be. After all, they know that failing to accommodate may mean that they won’t get their payments anytime soon, if at all.
Applying for too much credit
Everyone needs to have some credit, but applying for too much has a negative effect on your score. In addition, it can give the impression that you’re credit desperate. That is never a good look.
Each time you apply for more credit, your potential lender makes an inquiry of your credit history.
Each of those inquiries lowers your score, and provides a track record of who’s requested your report, and when they did so. Bottom line, too many inquiries in a short period of time is a red flag.
Avoid sending in every credit card offer that shows up in your mailbox.
No Revolving Credit
Not having a credit card or line of credit at all is a little known destroyer. Many people are getting rid of their credit cards in an effort to avoid debt. Unfortunately, this does nothing to help your credit score.
Experts believe that the ideal credit report includes 2-3 credit cards, along with 1-2 installment loans at any given time. At any rate, credit diversity can account for as much as 10% of your overall score.
Credit cards help to keep your credit history current.
Co-signing for someone else can be a mistake. Putting your credit on the line by co-signing for someone else is a huge risk. Their failure to stay current with the payments can destroy your credit score.
Legally, you’re equally responsible for that debt, so any late payments or defaults will show up on your own credit report.
You can even be subject to collections and lawsuits. Furthermore, if a lender won’t do business with them, you might want to reconsider before co-signing.
In conclusion, by simply avoiding these common mistakes, you can’t help but have a great score that will guarantee you the lowest interest rates, even if your score is poor now. It may take time to improve your credit history, but it’s definitely possible. If your credit history is on the struggle bus, let’s chat. Click here to schedule a free Money Mastery Call.
Give your credit profile the amount of attention it deserves. It makes life a lot easier!