In the U.S., 8 in 10 Americans are in debt, so it’s vital to pay attention to your credit score and avoid mistakes.
Read on to discover these simple ways to maintain better credit and avoid these pitfalls.
1. Ignoring Your Credit Report
Not paying attention to your credit limit can affect your credit score, and so can avoiding your credit report. It can cause your credit score to slip without you even knowing.
Don’t assume it’s OK, it’s important to look at your credit report to know where you currently stand. It’s also a great way to find errors on your credit report as well.
Those errors could affect your score. Aim for checking your credit score at least every few months, and preferably every month. You can check it online for ease and convenience.
If you spot a mistake in your credit report, contact your credit bureau immediately.
2. Paying Bills Late
When you pay bills late, that can negatively impact your credit score. Before you have a maxed out credit card, ensure you can afford the payments when they’re due. Not only might your credit score be affected, but you could be charged a penalty fee as well.
If you often forget to pay your bills, set up automatic payments and then you don’t have to worry about them. If you don’t feel comfortable with automatic payments, place a reminder on your calendar or on your phone to pay your bills.
When you know you’re going to be late, reach out to creditors and let them know the situation. They might be able to offer you a payment deferral or other options.
3. Applying for Too Many Credit Cards
It might be tempting to apply for multiple credit cards, but you’ll want to avoid this. With each new credit application, this places a hard inquiry on your credit report. Too many hard inquiries at any given time can decrease your credit score.
4. Using Too Much Available Credit
When you use too much of your available credit, it can have a negative impact on your credit score. A good rule of thumb is to use less than half of your available credit. If you’re shooting for an excellent credit rating, that percentage drops to 30% (link to vantage score resource).
If it is at all possible, try to pay off the total outstanding balance each month prior to the due date.
5. Making Minimum Payments
While making minimum payments will prevent late fees from occurring, you’ll still accrue interest. Once this happens, the amount you owe can jump, and that can make it harder to pay off your debts.
It’s always best to make payments larger than the minimum required payment to pay down debt as quickly as possible, which reduces the total amount of interest paid.
6. Closing Old Credit Cards
The age of your credit accounts will affect your credit score. Having a longer credit history will show lenders how you handle money over a longer period of time. When you close a credit card, it doesn’t count toward the average age of your overall counts. So if it’s an older credit card you close, this can negatively affect your credit score.
7. Taking Cash Advances
Only use cash advances in an emergency. If you choose to use them, you could face an upfront fee, and deal with daily interest charges. Always explore other ways to get extra cash before using cash advances from your credit card.
8. Spending for Rewards
While it’s tempting to spend money to get rewards such as airline tickets or cashback, resist this urge. The opportunity to earn rewards can wind up making you spend more than you initially would have. Make sure you always read the fine print for cashback rewards as well.
Credit Mistakes to Avoid
While limiting debt can be tricky, avoiding these eight credit mistakes can significantly improve your credit score.
Consumers with continued credit difficulties should seek credit counseling.