Don't Make These Credit Mistakes
Follow these tips to avoid common financial mistakes that can adversely affect your credit score.
Keeping your credit in good standing is incredibly important to your financial health, but just how important isn't always apparent until issues arise. Many common mistakes can damage your credit and make it harder for you to remain in control of your future. Here are some of them:
Not paying bills on time
One thing that can hurt your credit quickly is not paying your bills on time. Set up automatic payments when possible to avoid missing a payment. You may be able to do this on the vendor’s website or through online banking at your bank. Many people make the mistake of not looking at bills until it’s time to pay them. This can be the source of some unpleasant surprises if the bill is larger than expected, and can lead to missing or delaying payments because of a lack of funds. Pay attention to your bills when they arrive, then organize them by due date to make sure you’re not missing a deadline.
Maxing out credit cards
Maxing out your credit cards will only make them more difficult to pay off, but it will also negatively impact your credit score. Carrying a balance on your card can get expensive as well, particularly when there's a high interest rate. Make an effort to spend only what you know you can afford, and then pay off your balance as soon as possible.
Taking out cash advances
Avoid taking out cash advances from your credit card(s). It may seem like a convenient way to get some quick cash when you need it, but you may end up paying a heavy price.
As LearnVest explains, "You’ll usually pay a fee per cash advance plus an interest rate higher than your credit card’s purchase interest rate by 1 to 7 percentage points. The other problem is that it can hurt your credit, depending on how much you take out. If the outstanding balance on your credit card is already high, taking a cash advance could push your credit utilization rate into territory that is bad for your credit score."1
Not keeping up with your credit score
Failing to keep up with your credit score is another big mistake. If you don't keep an eye on this, you may be in worse shape than you realize. Plenty of services online will allow you to check out your score and request a credit report. Check out Credit Karma, FreeCreditReport.com, or Experian, to name a few. When you get a look at your credit report, pay close attention to everything listed and look for mistakes and outdated issues that can be corrected. If you find an error, contact the proper company and inquire about rectifying the situation.
Closing old accounts that aren't costing you
It may seem like a good idea to close out old credit card accounts that you are no longer using, but the reality is that you will likely be better off by leaving them open. As the Balance explains, "If an old card is collecting dust in your wallet, you may be tempted to close the account and toss it. But unless you're paying a big annual fee, it's a mistake to close your card. Closing a credit account could unexpectedly ding your credit score, even if you haven't used the card in months. By closing the account, you'll lower the total amount of credit that's available to you, which will negatively affect your credit utilization ratio — an important component to your score."2
Not using your credit cards
Even if you're not using a specific old card, you should actively use credit cards, as this helps build your credit in the right direction, assuming you're paying them off regularly. Regular use and payment illustrates responsible borrowing.
Applying for too many cards
If you're looking to get a new credit card, don't apply for too many of them at once because this will show up on your credit report, too. Each application will affect your score in a small way, but multiple applications can accumulate into a major deduction.
Co-signing for someone else
Co-signing a loan for someone else removes the element of control, since you're putting your financial health in someone else's hands. If the other person fails to make payments, it's going to be reflected on your own score.
Not being protective of sensitive credit card info
Be sure to protect your credit card information. Not only does compromised information lead to fraud and identity theft, these things can also negatively impact your credit score, and you may have to spend lots of time and effort to get issues resolved with credit agencies.
Nevada State Bank offers several credit card options. For more information, click here.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of Zions Bancorporation, N.A. Member FDIC