We all know that with good credit, just about anything is possible. But what happens when your credit is not so good?
When your credit score is not up to par, it becomes difficult to obtain even the basic essentials for life. If you have ever lived with bad credit, you already know that finding a home, a job, transportation, or any of the other life essentials is not easy.
It is easy to understand how your credit score can make or break you in this modern world, but what’s not so easy to grasp is how to keep your credit the best it could be.
Few people realize that some of our most common habits may be harming our credit. So, if you’re wondering how long it takes to build a good credit, it can take years to restore your good name.
Therefore, it is best to avoid these common mistakes from the very beginning.
1. Applying For Too Much Credit.
There is something impressive about being able to pay for something in a wide variety of ways. Having a lot of credit can make that possible.
However, every time you fill out a credit application, an inquiry is noted in your credit report. Each one can reduce your score by a few points or more.
Applying for credit in too many places can negatively impact your score in ways that may take a year or more to recover from.
2. Charging To The Max.
Maxing out your credit cards is another risky move. A percentage of your credit score is based on your debt-to-credit ratio.
If your ratio is more than 50% of your allowable credit, your score will suffer. Ideally, you want your ratio to be between 10-30% for a more favorable result.
3. Late Payments.
Maybe one or two late payments over time will not have a significant impact on your score.
Still, considering that a considerable percentage is based on your payment history, it would be wise to avoid making it a habit of paying late. These late payments can stay on your record for up to seven years.
4. Having Too Many Credit Cards.
Just like applying for too much credit can damage your score, so can having too much credit.
If you’ve had pretty stable credit for a while, it’s a good chance you’re getting more than your share of offers to open new credit cards. It may be hard to resist, but it’s better to only accept credit from companies you are planning on doing business with.
5. Closed Accounts.
It may be instinctive to close your account after you have paid it off, but this seemingly smart move may be causing you harm.
A portion of your score is based on the age of your accounts, so closing your accounts, especially the older ones, can really hurt you.
6. Missing Payments.
While late payments are bad enough, missing payments can be much worse. An account that is behind several months can be extremely damaging.
If you are even further behind, the account could be sent to collections or written off entirely. In both situations, your account will severely suffer.
7. Co-Signing For Someone Else.
While you may want to be a good friend or relative, co-signing on a loan puts all the responsibility on your shoulders.
Not only will this impact your credit-to-debt ratio, if the other person pays late or misses a payment, it will show up on his credit report but on yours as well, bringing your own score down.
8. Not Checking Your Credit Report.
You should make a habit of checking your credit report every year for errors or any sign of fraudulent activity. You can’t fix mistakes if you don’t know about them.
This should be a regular habit because some credit (like medical bills) may not appear on your report right away. By regularly checking your report, you will know early enough to address any issues and keep your score from dropping for erroneous activity.
9. Paying Only The Minimum.
Paying only the minimum payment on your accounts also can negatively impact your score. This is especially true when paying credit card balances.
They usually have a higher interest rate, which will take that much longer to pay off. Not only will you spend a significant portion of your money on interest, but it will also keep that bill on your report for years, which will damage your utilization ratio.
10. Not Having Any Credit At All.
Many problems come from having credit, but you can suffer a lot more if you don’t have any credit at all.
Good credit, even if it is just a small amount, makes it possible for you to get the things you need when you need them. Basic things, like utilities, can be a lot easier when you have some record on your credit history.
Even if you don’t need credit, it is always a good idea to maintain it anyway. Most of us make mistakes at some point in our credit history, which can damage your score.
Still, if you are aware of these pitfalls, it could not only improve your score but make your life a whole lot easier.