Remember the high school class in which you were taught about credit scores and how you can build a handsome score for yourself?!
Well, you’re right. How would you remember when there was no such class?! No high school imparts such education to its pupils. And this is also the reason why a large number of American young adults are making a whole lot of avoidable credit mistakes.
Committing credit mistakes can result in years and years of negative consequences. In fact, building and maintaining a healthy credit score is a lot like reaching and maintaining your ideal body weight. While it’s easy for some people, others find it almost impossible.
Both the targets require plenty of consistent effort and hard work, without any cheating. However, when you do achieve a VantageScore or FICO score in the range of 750-800, it doesn’t mean that you can afford to sit back and relax. Rather, it becomes even more important to pay regular attention to your credit score, as it is much easier to pull down a good credit score than it is to pull down an already poor one. Well, the whole point is, whatever your present credit score may be, NEVER ever commit any of these harmful credit mistakes.
Charging hefty amounts to your credit card
A large number of consumers have no idea that charging hefty amounts (in the vicinity of their credit cards’ limits), can have a very damaging impact on their credit scores. The credit score gets pulled down even if they make every single payment on time and in full.
All credit scoring models including Vantage Score and FICO feature a metric known as the revolving utilization percentage. This percentage is nothing but the balance payable on your credit card, to the available credit limit on that card. The revolving utilization percentage is reported to all major credit bureaus on a regular basis. The higher this percentage is, the lower will be your credit score.
People having excellent credit scores normally have a credit utilization ratio of less than 10%. It means that if your credit card has a credit limit of $ 15,000, you’d keep your credit usage below $ 1500 at any point of time, also ensuring that you make your payments on time.
Please also remember that it isn’t sufficient to pay your balances in full every month. The credit reports don’t get updated in real-time. Hence, they don’t reflect the actual balance on your credit cards as of today, and instead show the balances appearing on your previous month’s statements. So, if your last month’s credit card statement had a balance of $ 1,850 on it, that’s the amount that’ll appear on your credit reports today, along with the utilization rate of 12.3%, presuming that the credit limit is $ 15,000, even if you had paid that $ 1,850 bill on time and in full.
How you can avoid making this mistake?
There is a pretty good hack to avoid committing this mistake, but you’ll need to forego the 21 day grace period. All credit card accounts have two important dates associated with them: the statement closing date and the due date. Paying off any balance in full by the statement closing date can turn the balance to zero dollars, resulting in utilization percentage of zero.
What this means is that if you’re serious about paying off your balance in full, why push the payment into grace period?
Not making payments on time
The absence or presence of any negative information in your credit report has a major impact on your credit score. Hence, the quickest way to shoot down your credit score from 750 to 600 is by missing a payment, even if it’s simply an oversight. To give you an example, your student loan just came out of the deferment and you forgot to make the initial three payments as you had no clue they were due! This can solidly hit your credit score.
How to avoid this mistake?
We live in a very fast-paced world and it’s understandable to get extremely busy sometimes. However, it’s also important to stick to your schedule and pay your bills on time. You can ensure that you never miss any student loan and/or credit card payment by setting them up to be paid automatically each month.
In addition, keep a constant lookout for any voicemail, email or snail mail from any creditor trying to reach you. It could be regarding any past-due balance that may have skipped your attention. Furthermore, make monthly bill payments a high-priority task in your financial life and ensure that it receives your undivided attention each month.
Not paying attention to your credit reports
It’d be foolishness to presume that all’s well with your credit just because you had an excellent credit score the last time you applied for a car loan. It isn’t uncommon for credit reports to go haywire due to silly mistakes. In fact, a study released by the Federal Trade Commission in the year 2013 revealed that almost 21% of all credit reports have some error in them.
Well, this may seem like an improbable one-in-five case, but remember if that one person (of the 21%) turns out to be you, you’d be facing serious consequences of that error. The study also found that majority of these errors can result in consumers paying more in terms of insurance premiums and loan payments.
How to avoid making this mistake?
Rather than presuming that all’s hale and hearty with your credit report, you should get into the habit of reviewing your credit report at least once every few months. In fact, a large number of credit card issuers give free credit score access to their card holders (on a monthly basis). Furthermore, you must immediately contact the credit bureau if you find any error in your credit report. Only you can point out such errors as the bureaus have no means to find out what should be and what shouldn’t be on your credit report. They’re not obligated to correct any such errors either, unless explicitly asked to do so.