Credit Mistakes That Could Lower Your Credit Score

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Because credit scores are so crucial to our lives, I thought it might be helpful to go over things that you should not do and could hurt your credit score.  This way, you will not have to learn the hard way by making mistakes and watch your score drop. It is easy to follow these simple guidelines and continue to improve your credit.

Review Your Credit File

Many credit reports contain errors; it is vital to make sure all the accounts that are listed on your credit file are yours and are reporting correctly.  If there are items that do not belong to you, they could be damaging your credit score.  Besides, it could also be an indication that your identity has been stolen.  At the very least, your credit report should be checked once a year or before applying for credit.  You can obtain a free credit report from all three major credit bureaus at annualcreditreport.com.  The report will not have a credit score, but it will allow you to review your credit file.

Do Not Apply for Credit That You Will Not Be Approved For

Companies have specific criteria for approving credit for consumers. It’s important to know what therequirements are before you apply. They will review your credit file and will review your credit score, positive accounts, and negative accounts.

 When you apply for credit, the company you apply with will pull your credit.  This is called a hard pull and will result in an inquiry being reported on your credit report.  Hard pulls to your credit hurt your credit score.

Your credit report will look even worse when you are not approved for the credit.  Other companies who pull your credit in the future will be able to see this by reviewing your file and seeing an inquiry listed with no open account.  That will show other creditors that you were not seen as creditworthy.

It is essential to do some research before applying for credit.  If you are applying for credit cards, look for cards that will approve you based on your score.  If you are interested in a mortgage, speak to a lender to determine what the criteria is for approval.

Do Not Charge up Credit Cards to Cover Your Monthly Expenses

Sometimes it may seem tempting to pay you bills with your credit card when you do not have enough money to cover everything, but this is a trap that you do not want to fall into.  Not having enough funds to pay the monthly bills is an indication  that you are overspending and need to get on a budget right away.  If you continue to use credit cards to pay your bills when your cash is low,the usage on your cards will go up and cause your credit score to drop.  You will also not have the funds available if a real emergency occurred.

Do Not Charge Expensive Items You Plan on Paying Off Slowly

When you want to buy expensive items,you should save for them and then buy the item.  This will allow you to set aside what you can afford in your budget each month.  If unforeseen expenses come up and a credit card was used, you would not be able to skip a credit card payment without it hurting your credit score.  Also, credit cards charge high-interest rates, and you will end up paying more for the item than if you had saved for it. You will also have kept your credit card usage down, which is 30% of your credit score.

Do Not Take Cash Advances from Your Credit Cards

Pulling cash from your credit cards is very costly.  You will be charged a fee for the money.  The cost will be between 1% and 5% of the amount of cash you take.  This amount will also be added to your balance, and you will be charged interest on it.  Many credit cards charge a higher interest rate for cash advances.

Do Not Skip Payments

Payment history is 35% of your FICO score, and missing payments will cause your credit score to drop. The category of payment history is the most significant part of your FICO score.  When payments are missed, you will also be charged a late fee, and the balance will increase.  Again, I will go back to budgeting and reviewing your spending habits to keep this from happening.  Make sure you are setting aside enough money to cover your monthly expenses.

Do Not Over Charge on Your Credit Card Just to Get Reward Points

There is nothing better than getting free items, so there is a temptation to overuse credit cards to get as many rewards points as possible.  The problem is that many people do not realize just how much has been charged on the credit card until the bill arrives.  It is important that if you are going to use your cards for reward points, you have the money saved to cover your charges.  Otherwise, the points end up costing you money due to the interest you will have to pay for the items on your credit card. 

Do Not Co-sign for Someone

Many of my clients have co-signed for someone, and it ends up hurting their credit score.  When you co-sign, you are responsible for the debt if the other person does not pay.  If they are late on their payments, the late payment history will be reported on your credit report and hurt your credit score.  It is easier just to avoid the problems of co-signing for someone else.

Avoid these Credit Mistakes

If you avoid the credit mistakes, your credit score will continue to improve.  It will take some effort on your part, but in the long run, it will be worth it when you have excellent credit.  Your great credit score will allow you to obtain a mortgage, car loan, and lower interest rates on credit cards.

Credit Questions

If you have questions on how to improve your credit score, feel free to reach out.  Give us a call at 360-326-2460.  We are here to help you improve your credit score.

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