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Top 4 Credit Mistakes


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TERMINOLOGY

There are a number of different credit mistakes that you are going to want to avoid. These mistakes can completely decimate your credit score and make it difficult for you to get a loan in the future. Here are a few of the top credit mistakes to avoid.

1. Closing Credit Card Accounts

Many people think that they should close out their credit cards when they get the balances paid off. While this might seem like it makes sense, this is actually going to hurt your credit in most cases. One of the key factors in determining your credit score is the length of time that you have your accounts open. This means that you should leave your credit card accounts open even if you are not going to use them anymore. This can help you boost your credit score a bit and keep you from lowering it by mistake.

2. Missing Payments

Another mistake that many people make is missing payments. Your payment history is the single most important factor in determining your credit score. If you miss payments, you are going to severely hurt your credit score. Even missing a payment by only 30 days is going to potentially hurt your credit score by 50 points or more. Therefore, you should always strive to make all of your payments on time. Your payment history actually makes up 35 percent of your credit score, so you want to put an emphasis on this.

3. Debt Settlement

Many people have heard of how debt settlement works and they are tempted to use it because it will allow them to settle their accounts for less than they owe. For example, if you have a credit card balance of $5000 that you have not paid in months, the credit card company might be willing to settle the balance for $3000. While it can be tempting to save $2000, it is going to really hurt your credit score. In fact, this can take as much as 85 points off of your credit score with this one action. Therefore, you should try to avoid selling your account and pay them off in a normal fashion if at all possible.

4. Over Utilization of Your Available Credit Limits

When you have available credit, it can be very tempting to use it. However, if you can refrain from using all of your available credit, it is going to help you avoid hurting your credit. One of the most important factors in determining your credit score is how much debt you have in relation to how much credit you have available. If your balances are above 30 percent of what is available to you, this is going to negatively reflect on your credit score. When you continually max out your credit card, this is going to hurt your credit score and make it look like you do not know how to handle your money effectively.