6 Terrible mistakes to avoid when you want to love and cherish your credit score
Nobody can deny the importance of credit score anymore. After all, it affects your various parts of life significantly. It determines whether or not you can:
a) Qualify for a credit card
b) Obtain a loan
c) Pay less on insurance premiums
d) Pay less on credit card/mortgage interest rates
Most significantly, when you think of making big purchases, credit score determines if you'll pay less or more. If you've a low credit score, then you'll pay a lot more than the person who has a better credit score and vice versa.
Believe it or not, a good credit score determines if you're a marriage material nowadays. So, don't be surprised if your date asks you “What's your credit score by the way?” in the midst of a romantic dinner. After all, a credit score is a big turn-on for girls since they can find out if the guy is a loser or a financially responsible person.
After digesting all these facts, you must be eager to keep your credit score as stellar as possible. Here are the 6 mistakes that you must never make to maintain a great credit score.
Mistake# 1: Forgetting due dates and paying bills as per your wish.
You don't rule the world and you can't pay bills as per your whims. Creditors are not your slaves. So, they're not going to receive late payments happily. If you pay bills late, then they will punish you by charging late fees and reporting to credit bureaus. This means you've to pay extra money plus the negative tradeline will appear on your credit report for 7 long years. Not to mention that your credit score will drop as well.
Mistake# 2: Applying for credit cards you don't even need.
When you apply for a store card just because it gives you a 10% discount on your purchases, you actually invite creditors to pull your credit report and check it out. This means you're triggering a credit inquiry. The higher the number of credit inquiries, the riskier you'll appear to your creditors. This will have a negative impact upon your credit score as well.
Mistake# 3: Making creditors nervous with over utilization of credit.
Over utilization of credit card is bad for your financial life. It happens when your credit limit is
$10,000 and you charge $9500 for buying various items. This means your current credit-utilization ratio is 95%. Remember, the higher your credit-utilization ratio, the lower your credit score. Ideally, you should always stay within your credit limit. In fact, it's best when your credit-utilization ratio is below 30%.
Mistake# 4: Staying away from credit cards and loans altogether.
Don't run away from credit cards. You won't be able to build credit history without credit cards and loans. So, if you don't have a credit card, it's time you get one. Just make sure you use it responsibly. Make occasional purchase with the credit card. Pay the balance in full every month. This will help you have a good credit score.
Mistake# 5: Not looking at your credit report from time to time.
In a perfect world, you wouldn't have to check your credit report from time to time. There wouldn't be any case of identity-theft. You could blindly trust credit bureaus, creditors and debt collectors. Unfortunately, we don't live in that world. Identity-theft cases are rampant in the country. Besides, 1 in every 5 consumers have mistakes on their credit reports. These mistakes prove costly in the long run and drop your credit score.
Mistake# 6: Taking out payday loans to meet your short-term financial needs.
This doesn't mean that your credit score will drop as soon as you apply for payday loans. If you can manage payments, then there won't be any problem. However, the problem is, it is quite tough to pay off these loans. These loans come with very high interest rates, which make it difficult to make payments. And, when you can't make timely payments, you're awarded with additional interest rates. Besides, lenders report late payments to credit bureaus and your credit score drops.
Perhaps, the worst mistake is to file bankruptcy since it drops your credit score. It can be an easy way out of your debts. But, its effect on your credit score is disastrous. Your score will drop by more than 200 points. It will take a lot of time to rebuild your credit and go back to your previous score.
Seek counselling when there are too many financial problems in your life. Try to find out other ways to resolve problems. In fact, when you seek counselling from the right organizations, you'll come to know that there are many other options to solve your problem apart from bankruptcy. Some of them are debt management, debt consolidation and debt settlement. You can choose any one of them.
Author: Andy Raybuck