Maintaining your credit score requires careful money management and attention to detail. Even the smartest consumers make simple mistakes that can have a huge impact on their credit scores. Here are five credit score mistakes that even savvy people make. Being aware of this can help you avoid an unnecessary drop in your credit score.
Asking too many accounts
Regardless of your credit rating, chances are you’ll be regularly bombarded with loan and credit card offers. Almost every retail store seems to offer a “special discount” for signing up for their credit cards, on top of any card offers you receive in the mail each month. Despite these opportunities, be careful how often you solicit offers of credit. Having too many inquiries on your report, especially in a short period of time, can negatively impact your credit score.
The question here is not to compare loan offers or credit cards. For example, if you’re looking to buy a car or a house, it makes sense to go to several lenders to find the best rates. The problem we’re talking about is asking for a wide variety of accounts over a long period of time. Creditors will eventually assume that you desperately need credit and you could get a red flag on your credit report.
Be selective when filling out credit card and loan applications. Do your research before allowing the lender to withdraw your credit to limit the number of inquiries.
Cancellation of old credit card accounts
If it’s been a while since you’ve used one of your credit cards, you might be tempted to cancel it. In fact, it can work in your favor to keep this account open even if it is not used. One of the factors that determine your credit score is the length of your credit history. As long as these unused cards have no balance, they serve as long-term references for other creditors in the future. Opening the accounts will also lower your debt to available credit ratio, one of the most important factors in determining your credit score.
If you have annual fees on your card or are constantly tempted to make additional purchases with this card, cancel it to protect your finances. You may see a slight drop in your credit score for a while, but you can get over it. It is wise to keep these accounts open if they cost you nothing during the year.
Getting Trapped by Introductory Offers
Introductory interest rates and rewards programs are great, but they can tempt you into opening an account that you don’t really want or need in the long run. If you’re shopping for a new credit card, don’t just look for a card with a great rate for the first 12 months. Try to find a card that will help you meet your needs for several years. Realize that most introductory prices have a catch. If you are late on a payment by one month, your introductory rate may be canceled and you will immediately begin paying the current APR. It’s an easy way to get into more debt.
In general, avoid store credit cards. They try to entice you with some initial discount, but they normally have very high APRs.
Co-signing for friends and family
If you have good credit and a stable income, someone you care about may ask you to co-sign for a loan or a credit card. No matter how much your heart wants to help that person, co-signing could land you in trouble. If that person can’t make payments on the account, you’ll need to do so in order to preserve your credit score. This relationship can quickly turn sour if you constantly have to pay someone else’s debt.
Ignore unused credit accounts
Keep an eye on all your open credit and bank accounts, even if they aren’t very active. You may not need to check them every day, but it would be wise to check them once a month. This helps you catch an unauthorized charge on the account as soon as it occurs. Most creditors will fix the problem fairly quickly if you catch it soon after. It can take several months for things to clear up on your credit report, so check those unused accounts once a month for any errors.