Mistakes To Avoid With Your Credit Score

When it comes to your credit score, not all mistakes are equal

. Some mistakes can have a much larger effect than others. There are some common blunders which can be avoided if you know about them and understand when to use caution. The biggest mistakes are the ones that can cause your credit score to drop, often by a substantial number of points. This will have an effect on your ability to get credit, and the terms you will receive if you do get approval for a loan or new credit account. One of the biggest mistakes you can make, and it can be a costly one, is to apply for several credit or loan offers within a short time period.

Frequent credit applications, within a short period of time, can be an immediate "red flag" to many credit companies and lenders. This may be perceived as a sign of money problems, or even desperation. It's important to remember, if you do decide to apply for several different credit accounts in short time frame, your credit score will reflect that. It's not uncommon for people to see their credit score dip several points after applying for too many accounts. And it's easy to get tricked into thinking this is a good idea. With all the promotions that are being done by credit companies and lenders to get people to sign up for new accounts, it's easy to believe that you are not going to hurt your score by signing up. However, this is a big mistake that many people make and in order to keep your credit score in good standing, you need to avoid falling into this trap.

Another huge (and common) mistake that people make, is not using their oldest credit accounts every now and then. A significant determining factor, when it comes to your credit score, comes from your credit history. In order to have a credit history, you need to have old credit cards and accounts. If you make sure that you use these cards every couple of months, this activity will be reported to the major bureau's and your credit score will reflect that in a positive way. Just make sure to pay off the purchase immediately, to avoid any further damage to your score.

One extremely common mistake that many consumers make, is to lower their credit limit. People do this thinking they will avoid going into more debt, when in reality, this step will hurt them in the long run. The "rule of thumb", when it comes to your score is, "The larger the gap between your available credit and your current credit balances, the better your score is going to be." If you follow that simple rule, you will find that repairing your score and getting it to that ideal number is a lot simpler than you may think. Just keep the gap between your available credit and your balance as large as possible and you can easily avoid being tagged as a high credit risk with a low FICO score.

Late payments are yet another big mistake that people make with their credit. Even missing one or two payments by a matter of days can be absolutely devastating to your score. This is one of the simplest, yet most common, mistakes that are made by the every day consumer. People really don't understand that late payments can be the difference between a good credit score and an extremely poor credit score.

The final mistake that needs to be mentioned is consolidating all of your accounts. Although this may seem like a good idea at first, this can be a huge mistake. A very common practice is to transfer all of your high interest account balances onto a credit card with a lower balance. This, however, can actually negatively affect your credit score. A much more practical and smarter way to go about this, is to evenly spread out all credit charges onto all of the cards you have. As we said before, this will enlarge the gap between your available credit and your account balance, and will, in turn, improve your credit score.

by: Tim Van Dalsum

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