Are you making mistakes when it comes to your credit score? A lot of consumers may think they have a good idea of how to manage their credit, but keep making these same errors, over and over. Avoid these credit mistakes your FICO score will be on the rise!
The 8 most common credit mistakes:
- Worrying too much about having your credit pulled for…
So many consumers stress about having their credit score pulled when shopping for a mortgage, auto loan, student loan or other big-ticket purchase. Of course, they’re worried about their credit score dropping from credit “pulls,” but their concern may be a little misguided and overblown. In fact, FICO understands that consumers will do their due diligence when making these significant purchases, so they allow consumers to group credit pulls within a certain timeline, so they only count as one. Therefore, the impact on their credit score is minimal – and it’s well worth it to have your credit pulled strategically.
- …But not worrying enough about having it pulled at other times
Don’t get so excited by the information above that you run out and start applying for every credit line and account available, because there’s an important caveat. When you apply for credit cards, retail accounts, payday loans, and other second-rate credit lines, FICO won’t count those grouped credit pulls as only one, so your score may be negatively affected.
- Maxing out cards
Your credit balances compared to the available credit (amount owed) comprise 30% of your FICO score, so it’s crucial that you don’t “max out” your credit cards or else your score will fall accordingly. In fact, it’s recommended that you keep your balances below 30% of the total available credit in order to protect your FICO score, and consumers with top-notch scores (above 800) typically keep balances below 10% of the available credit.
- Playing the balance transfer game
We all have that one friend who thinks they can out-think the credit card companies by playing the balance transfer game, opening new accounts all the time to take advantage of 0% and introductory offers, only to transfer the balance to the next card soon. While there’s nothing wrong with taking advantage of a great offer, shuffling credit cards frequently is like trying to win at blackjack – the house (or, the credit card company) always wins. Sooner than later, they usually miss a payment deadline, run into a card that treats a balance transfer like a cash advance, or can’t keep up with the mountain of fine print. Likewise, all of this opening and closing accounts will definitely drive your credit score down!
- Not checking your credit periodically
When was the last time you checked your credit score? It’s a great idea to pull your credit periodically, keeping abreast of any changes and making sure you’re on the right track for a score improvement. However, some consumers make the mistake of not pulling their credit because they haven’t taken out any new loans, missed payments, or made any big financial moves that would impact their scores. But remember that identity theft and data hacks are more prevalent than ever, and you probably won’t catch them unless you check your score often!
- Paying late
35% of your FICO score is computed by your payment history, so it’s essential that you always pay your credit cards, loans, and other payments on time. For that reason, it’s worth it to double-check to make sure your payments have arrived and registered with your creditors, and paying ahead of the due date is a great way to play it safe. I pay online AND set a quick reminder to check them all once a month the day before they’re due.
- Closing seasoned accounts
It’s not enough to pay on time, keep your balances low, and be mindful of what new accounts you open – you also should be very careful not to close seasoned accounts. In fact, 15% of your FICO score is based on the length of your credit accounts, so consumers who pay off and close a well-seasoned account are probably going to hurt their score – not help it.
- Not actively working to improve your credit
No matter what their circumstances and financial situation, a lot of people make the mistake of throwing their hands up in the air when it comes to credit scoring and just accepting their fate. That’s a big error, as EVERYONE can proactively work to improve their credit score. That may mean paying down your balances, strategically opening a new account, or even disputing collections and negative information on your credit report. It takes time, diligence, and organization, but every single person can work to improve their credit score and reach their financial goals.
Blue Water Credit is always ready to help!