Is your credit score holding you back? Have you ever wondered why it’s lower than you think it should be?
Many people don’t know what they’ve done to deserve the low score they have. Here are five common money mistakes that could be unintentionally sabotaging your credit score.
Mistake #1: Closing credit card accounts
Of course, you should reduce your debt load, beginning with your credit card debt. It’s expensive and most Americans struggle to keep it under control. But once you pay off a card, don’t close the account. Closing the account reduces your available credit, making your outstanding debt a larger percentage of your available credit and resulting in a lower credit score. If you struggle with self-control, leave the card at home.
Mistake #2: Maxing out credit cards
For your credit cards to actually help you build a better credit score, you need to keep your card balances below 20 percent of your credit limit. So maxing out your cards, even if you pay the minimum balance each month and pay on time, you are damaging your credit score by having too much debt outstanding.
Mistake #3: Not using credit
If you’ve sworn off using credit because of past trouble keeping it under control, you might be doing yourself a disservice. By not using credit and not having a credit history, your score will actually go down, because to banks and lenders, you are a risk if there’s no recent history of responsible credit use. So plan ahead, and if you plan to use credit in the future—to buy a home, for example—start building some credit by having a credit card account, even if you just charge one purchase and pay it off each month.
Mistake #4: Paying late
We’re all guilty of inadvertently missing a bill payment, but what you might not know is that if the creditor reports that late payment to the credit bureaus, it will be on your credit report and damage your credit score for years to come. So do whatever is necessary to pay all of your bills on time and in full. If you do miss a payment, call the creditor as soon as possible and make arrangements to get the payment to them right away. Be sure to ask what their credit reporting policy is and to withhold reporting your late payment. They might refuse, but it doesn’t hurt to ask.
Mistake #5: Co-signing for family or friends
We all mean well when we lend our good name and credit to a family member, child or friend, but it’s never a good idea. When you co-sign, you are tying your credit score to the co-signer’s behavior, which often ends up hurting your score. You are equally responsible for their debt, just as if it were a joint credit account. Remember, if a creditor doesn’t think they’re trustworthy to pay their obligations, neither should you.
By eliminating these mistakes and practicing good financial and credit behavior, over time, your score will begin to rise. And remember, in addition to correcting these five major mistakes, make sure you are checking your credit report and score at least once or twice per year.
This article was published in July 2017 and has been updated. Photo by @JulieK/Twenty20
Jeanne Kelly is an author, speaker and coach who helps people achieve a higher credit score and to understand credit reporting and identity theft. #HealthyCredit is her motto.
As the founder of The Kelly Group in 2000 and the author of The 90-Day Credit Challenge and The Credit Makeover, Jeanne Kelly is a nationally recognized authority on credit consulting and credit scores. She has appeared on the Today show, Fox News, The Willis Report and blogs for Huffington Post, Credit.com, MyFico.com, ESME.com and more.