Your credit score is a three-digit number, which ranges from 300 to 850, and it can be determined by the five following factors: payment history, debt-to-income ratio, length of credit accounts, new credit inquiries and type of credit used.
Let’s explore the 5 mistakes that may be lowering your credit score!
1. Paying Your Bills Late
If you pay your bills late, or worse, if you don’t pay them at all, the chances of getting a good credit score go dwindle down. A lot of companies will allow people to be late on one payment before they start to report it as a delinquent account to the credit agencies. However, if you stay in that pattern of being late, it can be bad for your score. If a lender has reason to believe you will not pay them back once the bill is due, they may opt out of doing business with you completely, thus damaging your score even further.
Paying your bills late impacts your credit score in a variety of ways. If you constantly pay your bills on time, it will help your credit score rise the more you do. If you are late or miss payments altogether, the chances of getting a good credit score goes down. If you can get a good credit score that is 750 or higher, it will make getting bank accounts, renting apartments, and even buying cars much easier!
2. Using an Oversized Portion of Your Credit Limit
It is always important to be sure you do not use more than your credit limit. If you get too close, or exceed your limits, it can put a strain on the relationship with that lender and reflect poorly on your score. They may start to believe you are in danger of being overextended and most likely will not extend further credit. If it isn’t already on your credit report, this could be the first step leading to that possibility.
The credit experts at iCASH Canada told us “The best idea is to have a utilization ratio of 30% or lower. That means that you are only using 30% or less of your available credit. You can continue to improve your score by paying down balances, or even increasing your limits with other lenders.”
Having multiple credit accounts open is a good thing, so long as they are in good standing. Payments on these lines of credit should be scheduled for before the due date. This is because having a balance that you are carrying can affect your debt-to-income ratio and make it appear as if you are more likely to default on loans, thus lowering your score or increasing the risk that lenders will turn down your request for credit.
This isn’t usually a problem for someone who has established a good track record of paying their bills and always uses less than the limit they have been given, but new users will want to stay below their total if possible.
3. Credit Inquiries
When someone is attempting to establish a new line of credit, or improve their score, they may go about it the wrong way. Many times, a request for an increase in your limit will be accompanied by inquiries into your financial history of other lenders. If you find yourself in a situation with multiple inquiries on one report, this may be causing larger problems for you.
When you are trying to establish new lines of credit, or improve your credit, it is important that you try not to have multiple inquiries on one report. If you do find yourself in this situation, you should call the credit bureau to request that they take off the inquiries; this is typically free of charge.
4. Paying only the minimum payments
One of the easiest ways to hurt your credit score is to not pay off your credit card balance each month. This will continue to add interest charges which can be a big drain on your finances. You should only be paying the minimum payment requirement if you can pay off your balance within a month or two. You should pay off your balance each month if you want to have a good credit score.
Paying only the minimum payment requirement can hurt your credit in a lot of ways. Exceeding this amount could have a positive effect on your credit report but paying only the minimum often will not help you establish your financial identity. The first problem with paying only the minimum is that it may take you years to pay off your debt. This also means that the interest rates on these loans will continue to grow and take up more of your income. That leaves less money for things like saving and investing, which can be damaging as well.
Not only do you have to pay down your debt now, but the interest costs on that debt will continue to grow until it is paid off. You might be better served by finding a way to lower this monthly financial obligation through a balance transfer credit card or consolidation loan.
This can really hurt your credit score and increase the amount of time it takes for you to be able to purchase a home or vehicle because mortgage and loan companies look at how much debt is on your credit card accounts. You don’t want to spend years working to improve your credit score and then have it all reduced because you missed one payment on a card.
5. Too Many Lines of Credit
There is one important thing to keep in mind when considering this point. If you have several different credit accounts open, but they are all being used responsibly and paid on time; your score will not suffer from that fact alone. What does matter though is how many cards you may have opened at one time.
If you are considering opening new credit accounts, it may be better to just leave the one or two that are already open. Too many cards could raise suspicion in lenders and make them think you may be financially irresponsible, lowering your score further with each inquiry they receive.
Even if your track record shows that you have good habits, adding more accounts to open new lines of credit can weaken that. Your best bet is to keep your credit card usage down and only open new accounts when they are necessary, or as a reward for good behavior.
If you have more than one line of credit it can lower your score, but if all the cards are opened in good standing, that is not a problem. The important thing to look out for is how many lines of credit you may have opened. Be careful not to open too many credit cards at once; this will weaken your credit score.
Mistakes that are lowering your credit score can be fixed, but you should take the time to understand why they’re happening in the first place. This article has talked about 5 mistakes that may lower your credit rating; if any of these apply to you, then it’s important that you try to fix them.
Remember these five keys points and follow them in order to improve your credit rating and establish yourself as a responsible financial person!