6 Sneaky Mistakes Affecting Your Credit Score (You Might Not Even Know You're Making Them!)
Building a good credit score can feel like a maze. You pay bills on time and avoid overspending, but your score seems stuck or even drops. Why?
The truth is, even credit experts miss some hidden dangers that can trip you up. These seemingly small missteps can significantly impact your credit score, impacting your financial well-being and hindering your ability to secure loans, rent an apartment, or even get the best insurance rates.
Here are 6 hidden credit mistakes you might not even know you're making:
1. Credit Card Surprise
While paying your credit card bills on time is essential, the credit utilization ratio also plays a significant role. This ratio, expressed as a percentage, compares your credit card balance to your credit limit. Even if you pay your bills in full each month, keeping your balance above 30% of the limit can negatively impact your credit score. It is like using too much gas in your car - it raises red flags.
2. Store Card Trap
Store credit cards can offer tempting rewards and perks, but they also come with increased risk. These cards often have higher interest rates and stricter late payment penalties. If you're prone to forgetting about them, it's best to avoid them altogether. Orly Hakimi, a credit expert, emphasizes that most late payments they encounter stem from forgotten store credit card bills.
3. Bill Pay: Trust, but verify.
While automatic bill payments can ensure timely payments, relying on your bank's bill pay feature introduces an extra layer of risk. Traditional mail payments are prone to delays and errors, and you'll be held responsible for any mistakes by the bank. Opting for autopay directly through the creditor ensures faster and more reliable electronic payments.
4. "Limited Credit Lines
Having a high credit score is important, but it's not the only factor lenders consider. Many mortgage programs require at least three open lines of credit within the past two years. Even with a high score, individuals with limited credit history (fewer than three open accounts) might be denied mortgages.
5. Closing Old Accounts
The length of your credit history significantly impacts your credit score. Closing old credit cards, especially your oldest ones, shortens your credit history and can negatively affect your score. While annual fees might tempt you to close accounts, consider negotiating the fees with the credit card issuer before taking this step.
6. The Balance Battle
It's not just about paying your credit cards on time. The amount you owe (balance) matters too! Even if you pay it off eventually, keeping a high balance can hurt your score.
Knowing these hidden dangers, you can keep your credit score healthy and build a strong financial future. Even small mistakes can add up, so stay informed and make smart credit decisions. With a little knowledge, you can keep your credit score shining!
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(This blog post is inspired by information from Orly Hakimi, a credit loan officer.)
