Credit scores are tricky things.
If you think that all you need to do is pay your bills on time, and avoid debt, and you’re on the fast lane to an excellent credit score—guess again. The truth is, it’s easy to fall into a bad credit rhythm and very difficult to get out of it.
And since roughly one-third of Americans have a “fair” to “very poor” FICO score, it’s important to find ways to improve your credit so you don’t become part of that statistic.
Here’s a list of common credit score mistakes, and what you can do to fix or avoid them.
1. Avoiding Credit Altogether
Building an excellent credit score presents something of a conundrum. Having no credit history at all is as deleterious as having a bad credit score.
So don’t avoid credit cards and loans completely. The idea is to establish some sort of credit history, and then figure out how to increase the credit score.
A good way to do that is to make small and recurring purchases with a credit card. Do not make an enormous purchase—like a new boat or luxury car that you’ll never be able to pay back—with your credit card. Instead, use it for small items, like groceries, or cellphone bills, that you think you can pay by the due date.
2. Closing Your Account
Shuttering a zero-balance credit card account might seem to be the best idea. After all, won’t it be a relief to finally rid yourself of that albatross?
But, in the world of credit closing a paid-off account will actually hurt your credit score. One of the problems is that it will reduce your available credit, increasing your credit utilization ratio. This is the ratio of your total debt owed to your total available credit, and it affects your FICO credit score.
So it might be better to destroy the credit card associated with the account, but leave the account open.
3. Using Credit Cards Only
Another important factor in establishing good credit is maintaining a diversity of credit.
One of the easy credit score mistakes to make, therefore, is to use only credit cards in your attempt to establish credit.
However, if you also make payments toward a car loan, a mortgage, and student loans in addition to your credit card lines, then you’ll a more diverse credit history. You’ll see a bump in your FICO score when your credit history is diverse.
This will account for approximately 10% percent of your total credit score.
4. Maxing Out Your Cards
If you’re one of those people who likes to max out your cards—spending at the utmost limit—well, you need to cut that out.
The problem is, even if you pay off your balance each month religiously, utilizing the full credit line can hurt your credit score. This all has to do with discrepancies between payment due dates and when the issuer reports your credit balance.
A good solution, if you’re determined to keep maxing out your cards, is to make frequent payments to keep your balance low.
5. Too Many Credit Cards
Sometimes, it can be easy to fall into the trap of opening up a store retail card in order to rack up those juicy discounts.
The problem is, having too many credit cards can adversely affect your credit score. Juggling all those different credit lines is hard even in the best of times, and it doesn’t take much to lose track and start falling behind on multiple bills.
So, opt for sales and coupons instead of an in-store credit card.
6. Overspending for the Points
Spending for reward points is one of the big credit score mistakes that you must avoid.
What this involves is trying to find ways to earn credit card rewards—whether in the form of travel miles, extra points, or cash back— by spending more money. But it’s easy to see how this can become a trap, and spiral out of control in ways that can hurt your credit score.
It gets dangerous when you begin to accrue excess bad debt, all because you’re spending more and more in order to earn money back. It’s a vicious circle that you’ll want to avoid.
7. Not Checking Your Credit Report
Don’t fall into the habit of not checking your credit report. This is an easy way to identify and fix problems before they get out of hand and ruin your credit score.
The good news is, getting a free credit score check is a cinch. You can consult your score free of charge at AnnualCreditReport.com.
This is the only federally authorized site that provides official credit reports from the three credit bureaus (TransUnion, Experian, and Equifax) for free.
Don’t fall for look-alike sites. Make sure to use the one listed above, or you’ll get charged unnecessary fees and be at risking of disclosing personal data that you should keep confidential.
8. Get Added as an Authorized User
Don’t be afraid to ask for help. This even extends to asking a trusted friend or relative to add you as an “authorized user” to an existing credit card.
The point is to help you establish a lengthier credit history, which helps your overall credit score. Obviously, you’ll only want to do this if the friend’s credit account is healthy—otherwise, it will end up hurting your score.
9. Not Paying
The worst thing you can do for your credit score is to not pay your bills on time. So it’s important to keep spending within your limits, and find ways to pay off your loans and credit payments in a timely fashion.
Of course, this isn’t always easy. Unforeseen events, such as job loss or medical bills, can hamper your ability to keep your payments current. So try to only make credit purchases and take on loans that you’re sure you can pay back.
Avoid These Credit Score Mistakes
Maintaining good credit is an unavoidable part of functioning in our society. By not making these credit score mistakes, you can open up many avenues for opportunity that would otherwise be closed to you.
The good news is, you can recognize these mistakes and develop habits and routines to avoid them. What other questions do you have about credit card mistakes? Ask them below and let’s discuss.
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