In an era of extremely tight (albeit cheap) credit, your credit rating is king these days. Therefore, it’s worthwhile to visit some of the top mistakes people make that knock their credit score down. Some of these are honest mistakes and one might not even think should impact credit, but they do.
- Paying Late – Just a single late payment can impact your credit. Much depends on how late and whether the vendor reports the payment to a credit agency, but credit card companies especially, are keen on being paid on time.
- Collections – If you continue to miss payments or have a disagreement with a vendor, they will generally rely on collections to resolve the matter. While they take a bit of a haircut, the mere mention of a collections agency harrassing you and your family tends to resolve matters very quickly. Why? Well, aside from the annoyance and embarrassment, moving into collections harms your credit score.
- Defaulting on a Loan – I used to have friends in college who bragged about running up their credit cards with plans to default when they graduated so they didn’t have to pay back the balance. Big no-no. And based on a student loan calculator, you’ll know what kinda debt you’ll have that CAN’T be discharged. These days, we hear much about the strategic defaults as well. It takes years for your credit to recover from such defaults.
- High Credit Card Balance (utilization) – While running a moderately high credit card balance and then paying it off in full each month would not be expected to have a detrimental impact on your credit, carrying a high balance, especially as a percentage of your overall credit available will tend to suppress your credit score. In the eyes of the ratings agencies, if you have a $5,000 credit limit, but carry $4,000 in revolving debt, this reflects poorly on you.
- Several Hard Credit Inquiries at Once – If you open several credit cards at once or apply for financing for a loan with several firms at once, these are all hard inquiries, and in the near-term, these credit checks reduce your credit score. Personally, I’ve tried to open only a card here and there or work with a mortgage broker via email and phone calls leading up to a deal until it’s 100% that the deal will go through before the do a hard pull on my credit.
My credit’s pretty solid now, around an 800 FICO score at each check, but I’m always on edge because you never know when you’re going to need to tap it. I’m getting close to a real estate deal now actually, and I want to make sure my financing goes through smoothly. There are various ways to improve credit ranging from long-term approaches to personal credit-related behaviors to using an organization like Secure Trust Bank to help improve your credit with their assistance.