Okay, we all know that there are plenty of myths that surround credit scores including one that says married couples share a single score and that everyone has only one credit score. (Both of these are false.)
Unfortunately, many people do things financially that unintentionally lower their credit scores, something that can lead to loan denials, higher loan payments and other costly problems. These common mistakes are outlined below and, once you know them, you can hopefully avoid them. Enjoy.
The first is avoiding credit entirely. Yes, living a debt-free life might sound like an excellent idea but, on the day that you actually need to take out a loan, it can make it much more difficult if you don’t have any type of credit history. Lenders want to see that you have experience (and success) with managing debt and that you can make on-time, consistent payments. If they don’t see that, they may decide not to issue you any credit at all even though you are debt free.
Checking around to see who has the best price is, in most cases, a savvy financial move but comparison-shopping with different lenders when you are looking for a mortgage or auto loan can actually damage your credit score. The reason is that lenders will first check the credit bureaus for your credit history and, if it looks like you’re getting ready to take on too much debt than you can afford, lenders can become concerned. People with limited credit histories can be affected even more.
Many people, after they pay off a credit card, close their accounts in order to reduce any temptation to use them again. This is problematic because lenders look for consumers with long-term credit experience. Having a credit card for a long time that’s paid off and doesn’t have any late payment history will reflect positively on your ability to manage credit. Without it, the opposite occurs.
If you share your card with someone that you believe might use it poorly, like your son in college or your frivolous spouse, lowering your credit limit may seem like a good idea. Think again however because lowering your credit limit can, you guessed it, hurt your credit score. If you’re only using a small portion of your overall available credit you’ll actually appear more credit worthy to lenders, so your best bet would probably be to take that credit card away from the person who’s using it foolishly rather than lowering your credit limit.
We recently talked about the best time to use a retail store credit card but opening a retail credit card account actually could knock points off of your credit score. For some lenders it’s also a red flag that he might be taking on more debt than you can handle.
Finally, some people believe that carrying-over credit on a credit card will show lenders that they can manage and maintain their credit accounts. So they maintain a small credit card balance from month to month that, in actuality, appears to lenders as if they might be in “over their head”. Paying off your monthly balance as soon as possible is always your best bet.
Checking your credit report at least once a year is an excellent idea. At AnnualCreditReport.com you can get your credit report once a year for free to make sure that everything looks good, there aren’t any mistakes and, even more importantly, you haven’t been the victim of credit fraud or identity theft.
The fact is, the best way to secure a strong credit score is to pay bills on time, every time.