Editor’s Note: This is a guest post from Marc Chas of MyCreditGroup
MOST PEOPLE do all they can to stay on top of their credit. They pay their bills on time, they keep their spending habits relatively conservative, and they only apply for new lines of credit when it’s a necessity. Establishing credit isn’t too hard; maintaining it can be another story, however.
So what happens when they check their credit report or worse, apply for a major loan, and discover their credit is not where they thought it was? What went wrong? They did everything right…right?
While most people are so busy watching the major items in their credit history, many forget there are minor details that can become major issues if gone unchecked. With that in mind, My Credit Group has compiled a list of the 5 most common credit mistakes just about everyone makes – and how you can avoid them.
1. Closing credit card accounts. For many people faced with a less-than-stellar credit history, their gut reaction is to immediately close all their credit card accounts and immediately go into Super Savings mode. This is a big mistake. Closing your credit accounts will make them inactive, meaning they’ll lose a major part of their influence and eventually fall off your report. Suddenly, you’re left with a smaller credit history, which will make it harder to apply for new credit when you need it.
• How to avoid this. Think of your credit report like your resume. You wouldn’t suddenly want your impressive work history to become null and void after a set amount of time, would you? Of course not. Therefore, you’ll want to immediately start paying down your high balances keeping at least 3 credit cards open so that you’ll still have open lines of credit.
2. Missing/late payments. This one’s pretty obvious. Everyone knows that to maintain a good standing with the credit bureaus, you should pay your bills on time, and in full. What may surprise you though, is how severely late payments can affect you, depending on how late you may be.
• How to avoid this. The obvious answer is to pay your bills on time, and you won’t have a problem. If you’re on a fixed income though, you might consider creating a budget for yourself to better map out what needs to be paid and when. You could also get in contact with your creditors to find out when they report information to the credit bureaus. Paying your accounts before their reported makes your accounts look even better on paper.
3. Too many high balances. If you treat your credit cards like Veruca Salt treats her daddy’s bank account, you’re probably sitting on top of a pile of junk you’ll never need and a credit history that looks like it fell in with the bad nuts.
• How to avoid this. Start paying down your debts as much as you can each month. In the future, remember to keep your charges below 10% of the available balance and DO NOT EXCEED IT.
4. Not having credit. It constantly amazes me that there are people that refuse to use any type of credit at all, choosing instead to pay for everything with the cash from their personal bank account. While they certainly have good intentions, refusing any type of credit is a huge mistake. Not only will you have nothing to show as far as sensible money management on your part when applying for a loan, you’ll also be left without a credit score (or with a very low one), which can make anything from purchasing a home or car, to landing a good job next to impossible.
• How to avoid this. Stop paying for everything with the cash you keep in a mattress and start applying for credit cards to establish a credit history. The faster you build up a good credit profile, the easier it’ll be to secure loans at reduced interest rates.
5. Too many inquiries. This last one may seem relatively minor, but you know what they say about the little things – they can add up. Having too many credit inquiries in your credit history in a year can equal a dropped credit score.
• How to avoid this. Luckily, the only credit inquiries that actually affect your overall credit score are applications for new lines of credit. That covers applying for a home or car loan, as well as new credit card applications. Avoid applying for too many new lines of credit at once, and inquiries will be the least of your worries.
About the Author: Marc Chase, President of Product Development for MyCreditGroup, a leading credit repair services company.
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