If you’ve ever applied for a mortgage, loan, or even tried to get insurance, your credit score is a major factor in not only your approval, but at what rate you receive. The higher the credit score, the more favorable rate you will receive, ultimately saving you the most money every month. Now while events that are have legal action against you will negatively impact your score the most, such as collections, bankruptcy, or foreclosure, but it’s the whole picture of your credit report that needs to be taken seriously and ensuing that nothing is missed so you can strive for the best credit score you can get with paying the least amount of interest that you can every month, saving you the most money you can over time without wasting too much back to the lenders.
Forgetting to Check
Your credit report may not be the first thing on your mind, but it should be more of an importance to make sure that all accounts are up to date and accurate, as any invalid information could cost you points off of your credit score and could hurt your approval and interest rate. By reviewing your report at least once a year you can look at the whole report, but even these days your credit score is included on monthly credit card statements so you are able to see month over month how your score is performing.
Not Having a Credit Card
While some may argue that not having a credit card saves from going into debt, I suppose that could be the case with some, but for most, missing out on having a credit card hurts your credit score, as you are not building up credit by charging and paying off the balance every month. In addition to that, probably the best reason to use a credit card and a point that could be argued to be used for every purchase, is that by even making the purchases you were going to make anyways, you can earn free points or cashback that would have otherwise been left on the table.
One of the largest factors of your credit score has to do with your payment history. Now, while missing even a day late could cost you a late fee or an interest rate spike, it is not reported to the credit bureaus until the account is thirty days past due, so you definitely have time to pay, but even if you forget, that neglect could be showing up on your credit report for the next seven years, whether it was an accident or not, so it’s a good idea to set reminders for yourself to ensure payments are made on time.
Hitting Your Credit Limit
Just as important as payment history is what you actually charge compared to your overall credit limit. The more you charge and get closer to your ceiling, the lower your credit score will go, so not only is it a good idea to payoff the entire statement balance every month for that reason, but it also avoids carrying over a balance and paying interest every month, which is a recipe for disaster and leads down a path of debt. You may even get offers to increase your credit limit, and that can improve your score, provide you do not spend more to make up for the increase.
Sometimes credit cards do get the best of us and that weight on your shoulders can feel never ending until you finally free yourself from the debt burden. When you do finally come out on the other side, your first reaction may be to close your account so you don’t go down the same path, but closing the account can actually hurt your credit score by removing that available balance, especially if you have balances on other cards and your credit utilization has suddenly increased, you can find your score drastically decreasing. If you don’t want to use the card, just cut up the card but keep the account open so you can hang onto that available credit.
Too Many Applications
While having your credit pulled may only reduce your score by a few points, it’s still worth noting to make sure that if you are having your credit pulled, that it is for something you really need, such as a refinance to a lower rate, or a credit card with rewards. Too many applications applied for could give lenders an uneasy feeling about you taking out too much debt.