February 11, 2020
Shawn Lane
Consumer Credit Expert
Good credit is a lifelong journey. It’s not something you can work to earn and then forget about once you reach your goal. Just like you need to constantly take care of your health by eating right and exercising, your credit requires constant attention.
Learning good credit habits is a great place to start. However, it’s also critical to figure out the credit mistakes you need to avoid.
Read on to discover three ways you might accidentally be sabotaging your credit score. Then, do everything you can to stop making these mistakes.
1. You think the occasional late payment isn’t a big deal.
Credit scores help lenders judge whether you’re likely to pay your bills on time if they loan you money. FICO Scores in particular predict the likelihood that you’ll become 90 days or more late on any credit obligation within the next 24 months.
As a result, if you pay your current bills more than 30 days after the due date, your credit scores might take some serious damage. The most important factors considered in your FICO Score have to do with your payment history.
Are you working to improve your credit so you can purchase a home, a car, or qualify for better interest rates? If so, even the occasional late payment might throw a wrench in your plans.
2. You don’t pay off your credit card balances each month.
Credit cards can be an effective tool to help you build better credit. Credit card debt, on the other hand, can lead to lower credit scores and a lot of wasted money.
The second most important category of your credit reports has to do with the debts you owe. It’s worth 30% of your FICO Score. The balance-to-limit ratio on your credit cards, also called your revolving utilization ratio, is one of the key factors that shapes your credit score in this category. The higher your credit card balances climb in relation to your account limits, the worse the impact may be on your credit score.
If you have a habit of revolving unpaid credit card balances from one month to the next, there’s a chance you could hurt your credit score. This is especially true if your balances increase from month to month and your credit utilization ratio increases. Yet if you pay off your full credit card balances, you’ll save money on interest and potentially improve your credit scores in the process.
3. You apply for too much credit.
When you apply for a loan or credit card, a lender will pull a copy of your credit report as part of your application. A record of this credit access, called an inquiry, is added to your report so that you’ll know when a credit bureau shares your credit information with others.
Some credit inquiries, called hard inquiries, have the potential to damage your credit score. When you apply for a new loan, for example, a hard inquiry takes place. (Checking your own credit won’t hurt your score.)
If you’ve struggled with bad credit for a long time, it can be tempting to apply for a lot of new accounts once your credit starts to improve. But don’t fall into this trap or you might set back your progress. Inquiries only influence 10% of your FICO Score, but too many hard inquiries do have the potential to push your score in the wrong direction.
Bottom Line
Making the wrong moves when it comes to your credit can sabotage your hard work. That doesn’t mean you’ll never be able to reach your credit-related goals, but credit mistakes could make it take longer for you to get where you want to be.
Ready to make a plan to reach your credit goals? Schedule a free credit analysis with a Financial Renovation Solutions credit consultant today.