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Your credit score plays a crucial role in your financial health, but small missteps can cause major damage. Many people unknowingly make credit mistakes that lower their scores and make it harder to get loans, mortgages, or even a good interest rate. The good news? Once you recognize these common pitfalls, you can take steps to correct them and boost your score. Here are seven credit mistakes you might be making—and how to fix them before they hurt your financial future.
Missing Payments
Even one missed payment can significantly impact your credit score. Payment history makes up about 35% of your score, making it the most important factor. Late payments stay on your credit report for up to seven years, making lenders view you as a risky borrower. Setting up automatic payments or reminders can help you avoid this common mistake. The key is to always pay at least the minimum amount due on time to protect your score.
Maxing Out Your Credit Cards
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Using too much of your available credit can make you look financially overextended. Your credit utilization ratio—how much of your credit limit you use—should ideally stay below 30%. Maxing out your credit cards not only lowers your score but also increases the risk of accumulating high-interest debt. Paying down balances regularly and keeping your spending in check will help maintain a healthy credit score. If possible, spread your purchases across multiple cards to keep utilization low.
Closing Old Credit Accounts
It might seem like a good idea to close old credit cards you no longer use, but doing so can actually hurt your score. Length of credit history accounts for about 15% of your credit score, so older accounts add to your financial stability. When you close an account, it reduces your total available credit, increasing your utilization ratio. Instead of closing old accounts, consider keeping them open and using them occasionally to keep them active. Maintaining a long credit history shows lenders you’re a responsible borrower.
Applying for Too Many Loans at Once
Every time you apply for a new credit card or loan, the lender performs a hard inquiry on your credit report. Too many hard inquiries in a short period can signal financial distress and lower your score. While one or two inquiries won’t hurt much, multiple applications in a short time can be a red flag to creditors. To minimize the impact, only apply for new credit when necessary and research your options before submitting applications. Responsible credit use means spacing out inquiries and choosing the right financial products.
Ignoring Your Credit Report
Many people don’t check their credit reports regularly, leaving mistakes and fraud undetected. Errors such as incorrect account balances or unauthorized accounts can drag down your score. Federal law allows you to check your credit report for free once a year from each major credit bureau. Reviewing your report helps you spot inaccuracies and dispute them before they cause lasting damage. Staying proactive about your credit history can prevent unnecessary drops in your score.
Only Paying the Minimum Balance
Paying only the minimum amount due may keep your account in good standing, but it can still hurt your credit. High-interest charges accumulate, making it harder to pay off your balance in full. A high balance increases your credit utilization ratio, which can lower your score over time. Aim to pay more than the minimum whenever possible, focusing on reducing high-interest debt first. Keeping balances low and making larger payments will improve your financial standing.
Co-Signing Without Understanding the Risks
Co-signing a loan means you’re equally responsible for the debt, even if you’re not the one using the funds. If the primary borrower misses payments or defaults, your credit score takes a hit. Many people co-sign without fully considering the financial risks, leading to unexpected credit damage. Before agreeing to co-sign, make sure you trust the borrower and understand the long-term consequences. If possible, have a repayment plan in place to avoid credit issues.
Take Control of Your Credit Today!
Avoiding these common credit mistakes can protect your financial future and keep your score in good shape. Review your credit habits, make adjustments where needed, and stay proactive about maintaining good credit. The stronger your credit score, the easier it will be to achieve financial goals like buying a home or securing low-interest loans.
Which of these mistakes have you been guilty of? Share this article to help others improve their credit too!
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Latrice is a dedicated professional with a rich background in social work, complemented by an Associate Degree in the field. Her journey has been uniquely shaped by the rewarding experience of being a stay-at-home mom to her two children, aged 13 and 5. This role has not only been a testament to her commitment to family but has also provided her with invaluable life lessons and insights.
As a mother, Latrice has embraced the opportunity to educate her children on essential life skills, with a special focus on financial literacy, the nuances of life, and the importance of inner peace.