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If you have good credit you can actually find your way to a house, a car or anything else you want a whole lot easier. That credit score may be able to help potential lenders understand more about your credit history and this is going to be crucial for any financial institution that considers lending money.
If you have really bad credit it can be extremely difficult to get any kind of credit. That’s why it’s so important to understand the importance of when you can use credit or not and even how you should be using it.
Let’s take a closer look at some of the worst mistakes you could be making.
1. Maxing Out Your Cards
One of the biggest things that impact your credit score is your debt utilization ratio. If you’re currently sitting on 50% debt-to-credit ratio (or more) you are definitely going to have a really bad time with your credit score overall.
Credit lenders really don’t want to give you new credit if you have maxed out cards or if you’re close to maxed out. Instead, you should be somewhere around 10% – 30% credit utilization instead.
2. Paying Late
If you make your payments late you will definitely lower your credit score. When you have any type of credit it’s going to get reported to a reporting bureau. Even landlords can make reports and storage unit owners. All of these things could end up as late payments on your credit report and that can cause you to get a hit on your credit score.
3. Keeping to Many Cards
You want to have a credit card that can help you increase your score, but if you keep getting too many cards it starts to decrease your score instead.
It’s super easy to get an offer for a credit card, whether in the mail or when you’re shopping at a store. You may even get special offers to save some extra money if you sign up. But there are some times where this is not going to be a benefit. It’s important to look at the long-term effects of those credit card offers. If you could make some great bonuses and pay off cards you’ll want to be really careful about it even still.
For those who get too many credit cards, and especially those who do so within a short time period, you’ll get more hard inquiries and you’ll have lower credit age. All of that is going to drop your score.
4. Co-Signing a Loan
If you co-sign for a loan for someone else you are actually saying that you take responsibility for the loan in case they don’t pay it. Not only that but it’s going to be right there on your credit report, no matter what. If the payments are late or missed it means that you get the hit on your credit score as well.
That’s definitely going to make for some problems for your score. Think about what could be the result if that person doesn’t take action.
5. Getting a Card You’re Not Ready For
A lot of people get credit cards right at 18 or even earlier than that with a co-signer, but that’s not always the right way to go.
Applying for a credit card should never happen before you know the basics of finance. You should know how to control your checking account. You should know about deadlines and you should definitely be able to manage some money.
On top of that you should have a steady income so you can make the payments. You definitely don’t want to miss any payments because that’s going to cause damage to your score. It’s all about knowing what your financial basics really are.
6. Closing Out Accounts
If you’re good at managing debt it means that you’re going to have older credit accounts and that looks good on your report. Closing older accounts means that you’re going to have a lower average, and that’s going to make lenders think you don’t understand what you’re doing with credit.
Not only that but you could have some damage to your credit utilization rate if you close an older account. Think about this, if you have 2 $10,000 credit cards and you have $6,000 in debt that means you have a 30% credit utilization. But if you close one of those cards it means you now have a 60% credit utilization.
Credit cards that you might have problems with, regarding missed payments or even collections, could result in damage to your credit report for a total of 7 years. That’s definitely not something you want, especially after you’ve canceled a credit card.
7. Ignoring Your Credit Report
If you’re not paying attention to your credit report you could easily have errors that you don’t even know about. You should be taking a closer look at Experian, Equifax and TransUnion to make sure that you don’t have mistakes. You’ll be able to fix those mistakes quickly if you see them.
The biggest problem for these will generally be medical payments, which may take a whole lot longer than other things to show up your report.
8. Asking for More
If you can keep your utilization low you’re going to have a better credit rating. In case you don’t have low utilization, however, you might think that requesting an increase would be the best thing, but that’s not always the case.
If you request an increase your financial institution is going to look at your information again to decide if you should get that increase. As far as your credit report is concerned, it’s going to look like you’ve applied for a brand new credit type.
9. Paying the Minimum
If you’re making payments on your bills that’s great, but paying the minimum is going to mean you’re not paying off your bill. A $10,000 balance and an interest rate of 13% means that your $200 minimum payment will take you over 6 years to actually pay off that debt. Plus, you’re going to pay nearly half that again in interest.
That means you’re not going to get very far with paying only the minimum and you’re not going to lower the balance or fix your utilization ratio.
10. Ignoring Your Personal Information
Identity theft is a very real concern and if you’re not careful about your accounts or anything you open you’re going to need to keep track of your personal information. Your banking account, credit card numbers and your social security number are crucial and you need to keep them safe. You also need to make sure that they’re always updated when it comes to your credit report.
11. Avoiding All Credit
There can be all kinds of problems when it comes to credit, but you want to make sure you have good credit rather than no credit. Your credit helps you build up a good history and it keeps you from going into debt. Getting other things that you need, like rent for an apartment or even having utilities and borrowing will be extremely difficult if you don’t have the financial history you need.
You need to have good credit, so make sure to take a look at each of these potential mistakes and don’t let them get you down. Your best option is to make sure that you make your payments completely on time and that you keep your balances down. If you already did a couple of mistakes – don’t despair. Usually, you can repair your bad credit in a couple of months by avoiding future mistakes.