Maintaining good credit is pretty straightforward, right? Well, yes and no. Most of us know the basics of having a great credit score – things like always paying bills on time and not taking on too much debt. But there may be little ways you are ruining your credit without even knowing. Check out these 5 things that could be preventing you from having an excellent credit score.
- Not Checking Your Report Regularly Checking your report regularly is an important part of maintaining a good score. Consider signing up for a monthly subscription to your credit report so you can check for any discrepancies or inaccuracies. Mistakes could range from anything to identity errors, fraudulent accounts opened in your name, or incorrect account details. It is also just as important to carefully check your bank statements and credit card statements to ensure you have not been a victim of fraud or been overcharged by a store or restaurant.
- Agreeing to Be a Cosigner It can seem harmless to want to cosign for a friend, child, or family member to help them get a better interest rate on a loan. It can be a big help for someone to have a cosigner, but few people understand the responsibilities and repercussions that come with it. By agreeing to cosign, you become responsible for that loan. If the main borrower should ever find themselves unable to pay, the creditor can come to you for the money. Not only may you be unexpectedly left on the hook for payment, but the mere fact that the borrower defaulted on the loan will negatively impact your credit score. Additionally, if the borrower becomes unable pay for an extended period of time due to illness, handicap or death you are responsible for the loan for a lot longer than you may be prepared for. If you do wish to cosign a loan, make sure you understand the terms and what the process is to get yourself removed from the loan, if need be. Note that while some loans do allow you to remove yourself as a cosigner, this is usually a lengthy process and one can usually not be removed unless they have be on the loan for a while and the borrower has proven they are able to make regular payments towards the loan.
- Not Paying Your Credit Card While Disputing Charges You are expected to pay your credit card bill every month. No matter what. Even if you are in the middle of disputing some charges. If you are a victim or credit card fraud or noticed you were overcharged for something, by all means dispute the charge with the merchant and/or your credit card company. The credit card company will mark disputed charges as pending, but then you are still responsible for paying the rest of your bill on time. A late payment is a late payment as far as your credit score is concerned.
- Maxing Out Your Cards (Even If You Pay Every Month) Just because you have a $5,000 credit limit does not mean you should be spending that much on a regular basis. Thirty percent of your credit score is calculated based on the borrower’s credit utilization. In other words, how much of your total available credit you use has a big impact on your score. A borrower who regularly maxes out their credit cards is viewed as a borrower who cannot handle debt responsibly. According to FICO, people with the best scores tend to average about 7 percent credit utilization ratio, but that 10 to 20 percent usage is still OK. Aim to stay always stay within this range and make full payments every month to see a big improvement in your credit score.
- Signing Up for Tons of Store Credit Cards It’s easy to be tempted to sign up for store credit cards because they often offer a substantial discount off your purchase in return. But every time you open a new line of credit, a hard inquiry is put on your report. Hard inquiries will only lower your score by a few points, so don’t fret if you actually need to open new credit. But resist opening a new credit card every time you shop – the money you’re saving in the short term won’t make up for what a lower credit score will cost you in the long run. If you are interested in having a store credit card, pick one or 2 where you shop on a regular basis – and remember to not max them out and always pay on time!
Like a large percentage of the population, you may be frustrated at your score because you pay your bills on time and are generally pretty financially responsible. The above common mistake may be holding you back from having an even better credit score. Now that you know the secrets to achieving a great credit score, you can put these tips into action!
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