Stay away from these five blunders to maintain the highest possible credit score.
Possibly, the most significant grade you will ever receive is your credit score. It controls the credit cards you may use and the loan interest rates you receive and may even impact the jobs you are eligible for. Therefore, you must maintain that score as high as possible if you want the best financial chances.
Strong credit histories take time to build, but a wrong decision may destroy them in hours. These are the top five credit blunders you should avoid.
- Late bill payment
The central aspect that affects your credit score is your payment history. It demonstrates to lenders your level of fiscal responsibility and your capacity to maintain your standard of living.
While one late payment might not seem like a big deal, it is. According to FICO data, a 30-day late payment can lower a good credit score by more than 100 points. The repercussions are much worse if several late payments or payments are 60 or 90 days late.
You might also be assessed a penalty APR by some card issuers, accelerating the rate at which interest is accrued on any outstanding balance. Removing a penalty APR after it’s been set is challenging, and some card issuers will keep it in place indefinitely.
See whether you can set up automated payments or remind yourself to pay your bills if you have trouble remembering. Contact the creditors you owe if you anticipate a few days of late fee on a debt. Explain your situation by requesting they not send this information to the credit bureaus. They could agree if you’ve been a good payer up to that time.
- Using your credit card only to make the minimum payment
Your credit card issuer won’t disclose a late payment if you make the minimum payment. Still, any unpaid balance will start to accrue interest.
APRs on credit cards can reach 30% or higher, which can quickly lead your balance to increase. Many people struggle to escape credit card debt once they’ve gotten into it. This may cost you hundreds of dollars and cause you to fall behind on other obligations.
Your credit usage ratio increases as a result of carrying a balance. This compares how much credit you have available and how much you utilise each month. You ought to aim to maintain this below 30%. A more significant credit utilisation percentage makes lenders wary of working with you since it suggests that you might be living over your means.
Make an effort to pay off any existing credit card debt if you have any. To decrease the increase your balance and cut down on your frivolous spending, think about switching to a card with a 0% introductory APR. Until your credit card debt is paid off, please put all your spare money each month toward it. Use any annual bonuses or tax refunds to help pay off debt.
- Credit card overuse
For two reasons, maxing up your credit cards is a bad idea. You’ll first notice that your credit utilization ratio is high. This may discourage other lenders and credit card companies from extending your credit because of your significant reliance on credit, which suggests that you might find it challenging to repay any money they lend you.
Additionally, maxing out your credit card could result in a penalty APR, which, as I noted above, accelerates the interest accrual rate on your balance and can be challenging to pay off.
- Frequently applying for new credit.
Your lender will run a hard credit check on your credit report each time you apply for a new loan or line of credit. This reduces your score slightly, but if you’re accepted, your new lower credit utilization ratio will compensate for this, so that it won’t be a problem. However, those little credit hits will build up if you frequently apply for new credit.
Given that people tend to browse for new credit, credit scoring agencies often count any credit inquiries within a 30-day window as a single inquiry. Therefore, submit all your applications during this window if you plan to look for a new loan or credit card to avoid having a second credit inquiry appear on your report.
- Closing old credit cards without contemplating the ramifications
The average age of your credit accounts also impacts your credit score. Lenders can make better selections with more information about your financial management from a more extended credit history.
For you to cancel a credit card, the account is not considered when determining your average credit age. This can drastically lower your average account age if you’ve held the card for a while, which could lower your credit score.
Of course, there are situations when it still makes sense to close the card. If you rarely use it and it has a high yearly charge, it’s probably worth the minor credit hit to cancel it. Even if you never use the card, you might be better off having it in your wallet if it doesn’t charge an annual fee.
By avoiding these five traps, you can maintain a strong credit rating and the willingness of lenders to cooperate with you. If you have committed any of these errors, try to fix them as soon as possible and be aware of the effects they will have going ahead. Then, no matter how low it has gone, you can gradually raise your credit score over time.
