There are some credit mistakes to avoid now if you’re really keen on protecting and boosting your credit score. By now you probably already know the benefits of having good credit. Your personal future will likely suffer if you have bad credit.
Good credit is an essential factor in getting the best interest rates for things like a personal loan, mortgage, or student loan. Also, if you have credit-based insurance premiums, they may be reduced if you have a high credit score.
Additionally, when you have good credit, it’ll be easier for you to get good loan rates if you’re looking to refinance your house mortgage, a debt, or to achieve other life goals.
Credit scores normally range from 300 (poor) to 850 (excellent). If your score is below 700, it is in your best interest to work on improving it so you don’t appear as a risky borrower to lenders.
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Here are six common credit mistakes to avoid:
Not checking your credit report regularly
You should check your credit report on a regular basis. When you do, check for any evidence of identity theft or if there are any accounts that have been opened in your name that you’re not aware of.
By regularly checking your credit report, you’ll also be able to catch credit reporting errors like inaccurate balances and payments.
Fraudulent activities and reporting errors can have a negative impact on your credit score until you file a dispute.
If you register with a credit monitoring service, you’ll receive alerts whenever your credit score changes. You’ll also receive alerts about possible fraudulent activities, late payments, and more.
You can get fast alerts on late payments, fraudulent actions, credit score changes, and more with a credit monitoring service.
Missing payments when due
Payment history is the most essential component in determining your credit score. It accounts for 35% of your FICO score. Missed payments are one of the credit mistakes to avoid.
Missed payments can quickly result in a subprime credit score, which can last up to seven years on your credit report. You wouldn’t want that.
You should always make the minimum monthly payments on your credit cards and loans. This will keep your accounts in good standing and keep you from incurring unnecessary late fees.
High credit utilization rate
One of the credit mistakes to avoid is a high credit utilization rate on your revolving accounts, such as your credit cards and lines of credit. It will hurt your credit score if you always use up the credit limit on your cards.
Even if you make the minimum monthly payment on the cards and keep the account in good standing, carrying a high credit card balance is not advisable.
If you have a high credit card balance or a significant loan balance, lenders may see you as someone who will be likely to default and therefore a risk.
Frequent credit applications
Another common credit mistake to avoid is applying for too many credit cards and loans in a short period of time. Whenever you apply for credit, it results in a hard inquiry.
Hard inquiries temporarily penalize your credit score and reduce your chances of being approved for new accounts.
When you have too many new accounts, this might also harm your credit. Too many new accounts may disqualify you from having the best loan rates.
Your chances of having a higher credit score are more likely when you have a longer credit history.
Canceling old credit cards
One of the credit mistakes to avoid is canceling credit cards that are several years old. Having fewer accounts reduces your total accessible credit and length of credit history, although it reduces your chance of fraud and default.
Early retirement fund distribution
If you choose to use your retirement funds to pay off your high-interest loans, it’s likely to increase your credit score. By doing so, you will avoid short-term financial difficulties.
However, you should remember that early retirement distributions will incur taxes and penalties and should be avoided if you don’t want that added stress in the future.
Use a credit monitoring service to discover where you stand with your credit score. Credible’s partners can help you uncover your credit score, history, and fraud alerts, among other things.
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