Let’s face it: it seems like there are a thousand different ways to damage your credit score. Some occurrences—such as bankruptcy and foreclosure—are obvious examples, while others aren’t as apparent. However, making an effort to avoid mistakes now can save you time, energy, and money in the long run. That’s why we’ve outlined seven common and easy-to-overlook errors that hurt your credit score.
Hard Inquiries
While they may sound like something a 1940’s detective would conduct, hard inquiries are commonplace today. A hard inquiry occurs when you apply for a new line of credit, and a lender pulls your credit report for review. These inquiries add a few points to your credit score and stay on your report for two years. If you apply for several lines of credit (those enticing in-store credit cards, for example) in a short period, those points can quickly add up.
Becoming an Authorized User on a “Problem” Account
A shared account is often seen as an essential milestone in a relationship. Before taking that next step, it’s vital to consider that your score could possibly reflect the payment history of the credit card that you are an authorized user of. If the account comes with a history of missed payments, high balances, or any other score-lowering items, you may want to stick to separate accounts.
Missing Payments
This may seem like a no-brainer – of course you’re going to make payments on time! However, with the hustle and bustle of our daily lives, even the most diligent of us can sometimes forget to make our monthly payment on time. Though one or two missed payment deadlines won’t necessarily hurt, making a habit of paying late or not at all can ultimately cause your credit score to suffer for up to 7 years.
Maxing Out or Closing Credit
Did you know that credit utilization accounts for just about 30% of your credit score? “Maxing out” or carrying significant debt on your credit cards can significantly lower your score. Maintaining lower balances relative to your overall accessible credit will result in a higher score.
Deciding to close a credit card account can also decrease your overall credit utilization ratio and bring your score down. While this may be tempting, especially if you have too many cards open, shutting down accounts shortens the overall age of your credit history. If you have no other option, try to close your newer accounts first, as 15% of your score is based on how long you’ve utilized credit.
Not Checking Your Credit Report
Did you know you can check your credit report from each of the three credit reporting agencies for FREE once a year? If we were you, we’d mark our calendars and make this day a holiday—it’s that important! While it’s vital for you to be aware of the overall health of your credit score, you should also pay close attention to the details on your report. Any errors or misinformation listed on your credit report could end up hurting your score. Any inaccurate or absent information that drops your score could raise interest rates and cause delays or denials when you want to make an important purchase.
Not Paying the Minimum Amount Required
Similar to missing payments entirely, not paying the minimum amount due casts doubt on your ability to pay at all in the eyes of lenders. Do this one too many times, and your creditors will eventually report your account as “past due” – a designation damaging to your credit score. Paying less than the minimum also hurts your wallet via additional interest charges and late fees.
Having Only One Type of – or No – Credit
After reading about all the potential errors you can make, it may be tempting to swear off loans and credit cards entirely! However, if you have no form of credit and no payment history, lenders won’t be able to judge how responsible you will be with payment. To qualify for a credit score, you need to have at least one line of credit that has been open for six months.
Once you begin to establish credit, it’s crucial to maintain a mix of installment loans and credit cards to optimize your credit rating—after all, 10% of your credit score is based on your credit mix.
What’s Next?
You’ve avoided the pitfalls we outlined above, triple-checked your score, and are ready to apply for a personal loan—now what? Consider reaching out to Credit Direct! We pride ourselves on providing our customers with a personal loan process that is quick, safe, and straightforward. Check our loan offers today with no effect to your credit score!