Your credit score is such an important part of your financial life. You need to do everything you can to protect it.
The best way to do that is to avoid making major financial blunders that hurt your credit score.
Here are four of the biggest credit mistakes people often make.
1. Missing credit payments.
Missing your minimum credit payments is a financial disaster.
First of all, each payment you miss badly hurts your credit score. Just missing one payment can drop your score by as much as 100 points. Considering the average score is about 700, this is a huge drop.
When you miss a payment, your creditor could also charge a penalty fee, usually around $15 to $35.
Lastly, many cards increase your interest rate to a high penalty rate after you miss a payment. The penalty rate could be double or more what you were originally paying in interest each month.
All in all, missing payments sets you back significantly. Be sure to always pay your minimum payment each month to avoid sliding further into debt.
“When you cancel an old credit
account, it hurts your score.”
2. Carrying large card balances.
Keeping too large a balance on your credit cards is another big mistake. Since credit cards charge interest, the more you have on your cards each month, the more you’ll owe in total interest.
Beyond that, owing too much on your cards hurts your credit score. The rating bureaus prefer to see you using no more than 30 percent of your total credit limit. If you’re using more, it will hurt your score.
3. Applying for too many cards at once,
The credit card market is massive and full of different options. When a bunch of tempting card offers come in, it’s hard not apply to all of them and collect all the signup bonuses.
Applying for many cards can also seem smart to someone with bad credit. If you send out many applications, one will eventually get accepted, right?
The problem is lenders keep track of how often you apply for credit accounts. If you apply for too many cards in a short period of time, credit card companies will worry you’re in financial trouble.
This increases the chances your application will be denied and could also hurt your credit score.
4. Closing old accounts.
Do you have an old credit card lying around that you never use? It might seem like a good idea to cancel it to make your accounts more manageable but it’s not.
Part of your credit score comes from the length of your credit history. When you cancel an old credit account, it shortens the length of your history and hurts your score.
Instead, keep that old card active and make a few small purchases on it each year.
These costly errors are a killer for credit management. If you can avoid these big mistakes, you’ll be well on your way to a great credit score.
Photo source: abcnews.com.