Think your credit score doesn’t matter? Guess again.
Your credit score is the first thing people will check when you apply for a loan, a line of credit, an apartment or house, and sometimes even a job.
Many people don’t realize that simple credit card mistakes can damage your credit and make you lose out on great opportunities.
Don’t let your credit score negatively affect your life — whether that means missing out on your dream job or the lowest interest rates when refinancing student loans.
Avoid these seven most common credit mistakes and protect your financial future for years to come.
1. Applying for Store Credit Cards
It can be tempting to fill out that little application form to save X% on your purchase in the store that day. In fact, you might assume taking advantage of these savings are a good financial habit.
But did you know that just by applying, you are opening a line of inquiry on your credit that could negatively affect your score?
The more “hard inquiries” on your credit, particularly within a six- to 12-month window, the more you damage your score.
Don’t apply for a credit card until you need it and you know with a good degree of certainty that you’ll be approved. And for the record, no one needs a credit card to a department store.
2. Cosigning for a Loan
Let’s be blunt: co-signing on a loan is a bad idea.
We understand. You’re trying to help your child, aunt, cousin, or best friend from childhood.
But if they fail to make a payment, you’re stuck footing the bill, and you have no recourse in court. They can continue living in their house, driving their car, or enjoying the fruits of the loan, while you’re left struggling with the payments.
And if you refuse to make payments, you’ll damage your credit score — just as much as you would if you took out that loan yourself.
3. Making Late Payments
Late credit payments are one of the worst ways you can damage your credit score.
Your on-time payment percentage plays a big role in your credit score. Late payments negatively affect that portion of your credit history and make you look like an unreliable borrower.
Do everything in your power to make the minimum credit payments every month. Ideally, you should pay more than the minimum, but at the very least, make sure your minimum payments are always on time. Set up an auto-payment system to ensure you don’t accidentally overlook a bill.
4. Closing credit accounts
You finally paid off that credit card debt that’s been holding you back from financial freedom. Awesome! If your knee-jerk reaction after paying that last statement is to cut up the card, hold on just a minute.
Did you know that closing your credit card accounts can hurt your credit score? Closing your account will lower your available credit; if you have any other outstanding debt, such as another credit card, a car loan, or student loans, your debt-to-credit ratio will increase — bad news for your score.
As tempting as it is to say goodbye to that card forever, it’s in your best interest to keep the account open.
Note: You can still physically cut up the card. Just keep the account technically open, on paper.
5. Opening Credit Accounts
As ridiculous as it seems, opening lines of credit can be just as damaging to your credit score as closing lines of credit.
Don’t accept every offer that comes through the mail. Don’t refinance your loans or home mortgage unless you can save a serious amount of money by doing so. And don’t open lines of credit you don’t need.
Having too many new accounts within a short period of time harms your credit in two ways. First, it shortens your “average account age” – negating the positive effects of having older accounts. Second, you’ll show hard inquiries on your account, which also negatively affects your credit score.
Immediately trash any credit offers that come through the mail. You can even permanently opt out of receiving credit offers through the mail.
6. Not Checking Your Score
Ignoring your credit score can inadvertently damage it. Inaccuracies and fraud can leave your score lower than it should be. If you aren’t aware of these inaccuracies, you won’t be able to take steps to fix them.
You need to look at your score once a year to make sure that your score accurately reflects your credit history. If you spot an erroneous information, file a report with the credit bureau that lists the wrong data.
7. Sharing Your Credit Card Information
Scam artists and career criminals have creative tactics for retrieving your information and stealing your money. One legitimate-sounding phone call could make you lose your financial identity to criminals. Unless you have fraud protection, you could be on the hook for thousands of dollars.
Don’t let criminals lower your score by stealing your identity. Don’t ever give your bank account number, routing number, or access codes over the phone. Check your credit card statements to make sure you can verify all charges. If you spot something suspicious, report it immediately and place a fraud alert on your credit report.
Protect your score for years to come
Don’t let common mistakes be the reason that you have a low score and potentially miss great opportunities. Keep on top of your credit, avoid these mistakes, and make sure that you protect your credit score for years to come.
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