What are the Most Common Credit Mistakes People Make?

Managing your credit scores properly is always a wise idea when it comes to making sure your finances are as good as they possibly can be, but even those who start out with the very best of intentions don’t always end up doing it right. The issue that many may run into is even when they have the very best of intentions, misconceptions, simple mistakes and not fully understanding how scores are calculated can do a lot more damage than most people realize.

For these reasons, if you’re worried about keeping your credit scores as high as possible, so that you can help to guarantee yourself a chance at the best possible credit terms available, there are a number of things you’ll have to keep in mind which may not always occur to you as being potentially damaging to your standings, but which can, combined, lower your scores by hundreds of points or more. Simply knowing what these kinds of missteps are and how much damage they can do will often go a long way toward helping you avoid potentially having your ratings tumble considerably, making the need for a credit fix a very real issue.

The two biggest mistakes most people make

When money is tight at the end of the month — and these days, it often can be — some consumers may think it will be okay to miss a payment deadline by just a day or two. After all, how much damage can that really do, apart from the added late fee and potential penalty interest rate that most lenders will apply to an account at that point? The answer, unfortunately, is potentially a lot. The fact of the matter is that 35 percent of your scores are made up entirely how often you’ve been able to pay your bills on time in the semi-recent past, and even one misstep in this regard on one account will therefore bring your credit scores down by 100 points or more. And then unfortunately, the only way to smooth over the problem you’ve just created for yourself is to return to healthy on-time payment habits for several months in a row at least, to show lenders that this was only an isolated incident, rather than a sign that you’re mismanaging your money.

The second-largest credit score consideration can often lead to serious mistakes if you’re under what is sadly a very common misunderstanding. Some people across the country are of the belief that lenders “want you to owe them a lot of money.” On one hand, this seems to make a little bit of sense because of the fact that if you owe them a lot, you are in theory making them more money because of the interest charges you’re racking up. However, the opposite is actually true: Lenders want you to owe very little, because large balances mean they’re on the hook for potentially massive balances that won’t be paid if something goes wrong with your finances. In general, the most lenders want to see you owe is about 30 percent of the combined value on your all credit card limits put together. For example, if you have four cards and their maximums add up to $10,000, lenders would want you to owe no more than $3,000; owing any more than that amount will start to bring down your credit scores. As a result, you should try to aim for having the lowest balances you possibly can.

Some other problems that can arise

Those two factors alone make up 65 percent of your score, but that still leaves another 35 percent that can also be affected by actions such as closing old cards if you pay them off (15 percent), trying to open too many lines of credit at once (10 percent), and having very few types of credit (10 percent). All of these show, in one way or another, that you can handle your accounts properly for a long time, aren’t having any shortages when it comes to your cash on hand or liquidity, and can juggle numerous accounts with different repayment rules. All of these show that you’re a person who can handle various responsibilities as wisely as possible.

Finally, most people who have healthy credit scores are also very smart about regularly ordering copies of their credit reports and making sure that they know where they stand. Checking over these documents can also help consumers to determine whether there are any unfair markings which may be dragging down their scores overall. If any such entries exist on these reports, it might behoove you to contact a credit repair company, as doing so may be able to help get the issues cleared up as quickly as possible, and return you to where you deserve to be.

Posted in Credit 101
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