Ways to Improve Credit Score: Understanding the Three Credit Don’ts

Although people regularly use credit to buy or finance a home or automobile, many consumers are unaware of common credit mishaps, which can drastically reduce your credit score. Having a high credit rating is not required to finance merchandise. However, individuals with higher rates obtain better rates and save money. Before applying for credit, consider the following credit don’t, and attempt to avoid them.

Don’t Acquire Too Much Credit Card Debt

The most obvious common credit mistake involves opening too many lines of credit, and maxing out these credit accounts. Unfortunately, using credit wisely is not a course taught in school. Therefore, many people must learn the hard way. This typically involves applying and acquiring several credit cards upon turning 18-years-old, and beginning the journey into adulthood with several thousands of dollars in debt. Regrettably, some young adults do not recognize the seriousness of their mistake until their loan request for an automobile or mortgage is denied.

Because credit cards allow the freedom to buy whatever we desire, some people are unable to exercise self-control. The more credit cards you obtain, the greater the temptation to spend. To avoid this common credit trap, limit the number of credit cards you acquire.

Don’t Pay Credit Card Statements Late

Making late payments or skipping credit card payments is the easiest way to quickly reduce your credit score. For every late payment, you can expect your credit score to decrease 5 to 10 points. Moreover, creditors will report accounts that are 30, 60, and 90 days past due.

Credit report information is readily available to potential creditors. Because the majority of lenders are leery about approving loans to individuals with a bad payment history, habitually making late payments can ruin your chances of obtaining financing for a car or home.

Don’t Keep a High Credit Card Balance

Keeping credit card balances at their maximum limit and exceeding the credit limit is also damaging to your credit rating. Future lenders or creditors favor borrowers who display restraint. If your credit report indicates a serious spending problem, this will interfere with your ability to obtain credit. In fact, as a pre-cautionary measure, some existing lenders may decrease your current credit limits.

The key to avoiding overextending yourself involves keeping balances low. If your credit card has a spending limit of $2,000, make a goal not to exceed $500. Thus, the credit card balance will always remain under 25% of the limit.