Your credit score is one of the most important numbers in your life. It determines whether or not you can get a loan and what interest rate you’ll pay on that loan. You will get the best possible loan offer if you have a high credit score because it indicates you are a low-risk borrower. You may end up paying significantly more for a loan or being denied one if you have a poor credit score.
That’s why it’s so important to maintain a fair credit standing. But you may find some pitfalls on the way to improving your score. Here are some of them:
Not Checking Your Credit Report
While your credit score shows how credit-worthy you are as a consumer, your credit report tells your lender why that is so. Your credit report shows a detailed story of how your credit has been since it existed. Usually, it starts with your first-ever credit card. For others, it can be a loan, most commonly a car loan.
Usually, you can get your credit reports from three major credit bureaus like Equifax, CallCredit, or Experian. However, even if they are the three major bureaus, it doesn’t mean that they don’t make any mistakes. You should always ask for your credit reports and check them regularly.
Any discrepancies or errors, such as spelling mistakes, can hurt your credit score, and worst case scenario, you might fall victim to an identity theft scam. So if you’re not regularly checking your credit report, try to make it a habit.
Keeping Your Credit Utilization High
The meaning of credit card utilization is the percentage of credit you’re using on your overall balance. That said, you’ll become a liability to your lenders if you’re always hitting your credit limit. Experts recommend that you don’t use 30% of your total balance across all credit cards. It’s to keep your credit utilization low.
Keeping your credit utilization low will make your credit score go higher. It makes up a huge percentage of your credit score when calculating it. Also, lowering your balance across all your credit cards will help you manage your monthly payments more.
Late Payments
It’s a common one among people who have poor credit scores. Paying your monthly bills late can accrue more fees and hit your credit score. It’s a surefire way of going bankrupt shortly, so you should be careful. Also, we’re not just talking about your credit card or loan payments but also your rent if you’re a tenant. But what’s the connection between the rent and your credit score?
If you don’t know yet, your landlord can report you to credit bureaus about your late rent payments. Not just your rent, though, as even your library fines can dent your credit score. That said, never make it a habit to pay your fees late. If you’re doing everything you can to improve your credit score, but nothing is working, your late payments might be the culprit.
Submitting Too Many Credit Applications
If you’re slowly but surely improving your credit score over the months, you might be tempted to apply for another credit to increase your funding. While that’s fine, if a lender rejects you the first time, you should stop there. Why? Going for many credit applications can severely damage the credit score you have worked on thus far.
Every credit application puts another hard inquiry on your credit report. Not only will it damage your credit score, but also lower your chances of getting new credit. Depending on your reasoning, lenders would ask about these hard inquiries, which may or may not give you a chance to get new credit.
Adding More to Your Debt
And if you get new credit, you might want to settle for just that. While it’s not inherently damaging to your credit score if you get new credit, it also means you’ll have another monthly payment to pay. In short, it adds to your debt. Also, if you use most of the balance on your new credit, your credit utilization will increase, further damaging your credit score.
If you’re planning to pay off your debts, you might want to start with the high-interest ones. That’s because those debts can accrue more interest, meaning it will take a long time for you to pay it off the longer it exists.
Final Words
While there are a lot of ways for you to improve your credit score, there are also a lot of things that can further damage it. The points above are some of the most common pitfalls you can fall into, so you should be careful about them. Remember, improving your credit score is not easy, but it’s harder to have a bad one.
