Credit can often be one of the most neglected pieces of your personal finances—when was the last time you checked your score? When you don’t consider or understand the importance of your credit, you run the risk of hurting it. That’s why we’re here to tell you about ten of the most common credit mistakes—and some tips on how you can avoid them.
Avoid skipping or making late payments
With on-time payments accounting for 35% of your credit score calculation, the worst thing you can do to your credit is to pay your bills late. Every late payment becomes another mark on your credit, lowers your score, and makes you less attractive to lenders now and in the future.
If you sometimes find yourself making late payments, try setting up automatic bill pay to ensure your payments are made on time, every time.
Avoid spending up to your limit
Imagine you have a credit card with a $2,000 limit, and you spend an average of $1,800 each month, but pay your bill in full. You could still see a negative impact on your credit utilization. This happens because credit card issuers don’t necessarily report data to the credit bureaus at the same time your bill is due. If they share information while that $1,800 still shows as a balance, that’s the information the credit bureaus will use to evaluate your score.
You can combat this by making regular payments to reduce balances throughout the month, or by calling your card company and asking when they report information—and paying well before then.
Avoid ignoring your credit reports
When you ignore your credit reports, you’re not actively monitoring them for incorrect or erroneous information. But more than that, your credit reports can be a reminder to make regular payments and reduce your balances as you’ll have a record of both past and present activity. Request reports for free from all three major bureaus once a year, and you’ll notice if something has been impacting your score.
Avoid opening too many store cards
How many times have you checked out at a store and been offered a discount on your purchases if you open a store card? At some retailers, the answer is probably every time. And while that one-time savings may seem like a good idea for your bank account, in the long run, these store cards could hurt your credit.
Every time you agree to open a store card, the store runs a credit check. These checks raise your score slightly, but if you have a lot of inquiries over a short period, you could see more damage to your score. You’re better off using your primary credit card when shopping rather than hurting your credit and giving yourself more bills to worry about.
Avoid not having enough available credit
Finding the right balance of too much and too little credit can be difficult: you need credit to build credit, but how can you get it without a positive credit history? A secured credit card like the Green Dot® Platinum Visa® requires a small security deposit (which sets your credit line) and is perfect for anyone looking to build or rebuild their credit history. Your credit won’t be impacted to apply for a secured card, but the issuer will report your activity to the major credit bureaus. When you use your card responsibly and make your payments on time and in full, you’ll start to see some improvements with your credit. Learn more and check out Green Dot’s simple fees before applying.
Avoid carrying a card balance
Using credit is vital to boost and maintain a healthy score. But carrying a balance on your credit cards does nothing to improve your score and instead, can end up hurting it. Make it a priority only to spend what you have available and to pay off your bill in full each month. When you make your security deposit, be sure to give yourself a limit that you can reasonably expect to pay off in full each month—which will help keep your spending in line.
Avoid being a co-signer
When you co-sign a loan, credit card or significant purchase for another person, they can use your credit score to qualify for better rates or terms. However, that also means you are liable for covering the loan should that person default–and if they already have poor credit, you may want to ask them why that is.
If they stop making payments, and you don’t start doing so, your credit score is going to take a hit (with no benefit to yourself).
Avoid closing too many accounts
Again, the tricky part of credit is having enough activity, but not too much. Closing your credit cards or other accounts can end up hurting your credit for several reasons:
- You’ll have less overall credit available with that limit removed.
- Your debt-to-credit ratio will increase.
- Closing older cards can reduce the average age of your credit history.
If you have paid-off accounts, do not close them. Instead, destroy or hide any associated cards or use the account sporadically and you’ll maintain a higher credit score.
Avoid applying for a credit limit raise
The higher your credit limits, the more you can balance your credit utilization numbers—so long as you don’t spend up to or beyond those limits. However, if you ask a card issuer for a credit limit increase, they could treat your request as a new credit request, and will potentially pull your credit reports, giving you another drop in your score. Instead, speak with your issuer to see what their process for a credit limit increase is, and ask them what you might need to do to get an increase without even asking.
Avoid neglecting your other bills
Have a few unpaid parking tickets that you keep forgetting about? Small unpaid tickets and other minor costs like library fines may seem insignificant, especially because they don’t reflect on your credit report.
But that might not be the case if your unpaid bills go to a collections agency. Once that happens, collections agencies report your delinquency status to the credit bureaus, and those blemishes will stay on your report for seven years. Remember to pay all of your bills on time and in full, so you don’t find a surprise on your credit report down the road.
Checking and maintaining your credit should be a regular part of your financial management practices, as your credit will help you access more opportunities and can help you save money in the long run. If you’ve had trouble with your credit or are concerned that you could be headed down a destructive path, consider switching from traditional credit cards to a secured credit card, protecting yourself and your future. Apply to get a Green Dot Platinum Visa secured credit card today.