Having a good credit score is essential for managing your finances. It can help you get approved for loans, access better interest rates, and even qualify for some jobs.
Unfortunately, there are many mistakes people make when building or repairing credit scores that can set them back significantly.
From taking on too much debt to closing accounts without considering the consequences, here are common mistakes to avoid to maintain healthy credit scores.
Knowing what these pitfalls are will enable you to take proactive steps toward improving your financial standing and making sound decisions about borrowing money.
Not Regularly Checking Your Credit Report
Checking your credit report regularly is one of the most important steps to take to ensure that your score is accurate and up to date.
Credit reports can have errors, so periodically looking over them can help you spot any potential mistakes or inaccuracies.
This will allow you to quickly address them and get them corrected before any further damage is done.
For instance, if you see an unfamiliar account on your credit report, you can dispute it and have it removed.
Not regularly checking your credit report could also mean that any potential fraud isn’t detected until much later, which could cause significant financial damage.
Do You Monitor Your Credit Score?
Your credit score isn’t the same as your credit report, and it can be incredibly beneficial to track both of them.
Your credit score can give you an idea of how lenders view you and whether or not you’re likely to be approved for certain types of borrowing.
It’s important to make sure that your credit score is always up-to-date and accurate.
You can monitor it by signing up for a credit score service, or simply checking it yourself on the major credit bureau websites.
Having a credit app on your phone can also be a great way to quickly check in on your score and make sure nothing is awry. It can also help you stay on top of any changes that may affect it.
Not Paying Bills On Time
One of the most critical components of good credit is making sure that you pay all of your bills on time.
This includes not just loans, but utility bills, rent payments, and any other bills that you may have.
Late payments reflect negatively on your credit score and can take a long time to recover from if not dealt with quickly.
It’s important to always pay bills as soon as they come due, or even earlier if possible.
Setting up automatic payments can be an effective way to make sure that all of your bills are paid on time and that you don’t run the risk of missing a payment.
Furthermore, you can also set up reminders on your phone or calendar to give yourself an extra reminder when bills come due.
This will help ensure that nothing slips through the cracks and that you’re always on top of your payments.
Maxing Out Credit Cards
Credit utilization is an important factor in determining your credit score, so it’s best to keep it as low as possible.
This means not maxing out your credit cards and trying to keep balances below 30 percent of the available balance.
Otherwise, your credit score can take a hit, and it could take several months to recover from it.
Therefore, it’s best to pay off any credit card bills as soon as possible and not use them to make unnecessary purchases.
If you do need to purchase with a credit card, consider using one that offers cash-back rewards or other perks so that you can at least get something out of it.
Finally, it might seem like a good idea to close unused or inactive accounts, but this could be detrimental to your credit score.
Closing accounts reduces the amount of available credit that you have, which in turn raises the ratio of debt to available credit and can negatively affect your score.
Therefore, it’s best to keep unused or inactive accounts open and simply ignore them.
This will not only help you maintain a good credit score, but it can also make it easier to get approved for loans in the future should you need them.
Yes, building or repairing your credit scores can be a challenging task, but it’s well worth the effort.
By avoiding these six mistakes and following the tips outlined above, you should have no problem maintaining good credit and getting approved for loans in the future.
Regularly checking your credit report is key to spotting any potential issues before they become too serious.
Paying bills on time, keeping balances low, and not closing unused accounts are all important steps toward achieving an excellent credit score.