A decent credit score is crucial to be entitled to future loans. Maintaining a good credit score is not a distant dream, provided you manage your finances wisely. Handle your credit responsibly and avoid making mistakes to keep your score at an optimum level. A simple mistake can ruin the possibility of acquiring future credits.
Credit Mistakes to Avoid
Not paying your bills on time
You may have the required amount to pay off a loan. However, if you are unaware of the deadline or accidentally fail on a payment, it could cause a significant dent in your credit score. Even if the bank does not report you to the IRS for paying a late fee, it will charge you a hefty penalty that otherwise could have been avoided.
Late credit card payments can be charged exceedingly high penalties. Therefore, you must pay the amount due on time. To prevent credit mistakes related to late payments, you can use an automated payment process offered by banks. This will pay off the minimum amount and give you enough time to make the remaining payment.
Prioritizing payments incorrectly
Prioritizing debt payments is essential to maintaining a decent credit score. Most people prioritize more significant loan payments, such as personal loans and mortgages, over credit card loans, which makes sense.
Defaulting on a bigger loan payment can result in more critical financial circumstances for you rather than missing a credit card payment, which will cost you 1% or 2% of the balance. However, this is not a hard and fast rule; depending on the payment amount, you should prioritize the payments. Some credit card payments might be necessary to pay off as they are compounded. Therefore, prioritize according to the situation.
Not checking your credit report regularly
Checking your bills for discrepancies can be tedious but must be undertaken regularly. Sometimes, items on your credit report could be either charged by mistake or if someone has misused your credit card information.
You will never be able to know about any possible errors if you do not check your credit report from time to time. You can dispute these charges within 60 days, which is only possible if you know them. Charges related to fraudulent activities might allow you to dispute a charge for a long time. Not checking your credit report is one of your worst credit mistakes.
Closing an old credit card account
You might be tempted to close an old credit card account that has remained unused for quite a while. However, it can be a grave mistake unless you are charged a high annual fee. Closing a credit account can significantly lower your credit score, ultimately lowering the amount of credit you can acquire. It affects your credit utilization ratio, essential for measuring a credit score.
Closing your oldest cards with a history of on-time payments can be the worst credit mistake, as it can significantly dampen your chances of acquiring a loan. Lenders like to see credit accounts with a long history of on-time payments. Closing the account means it is eventually written off from your credit report. Instead of positively impacting the credit report, it affects it negatively. Even if you are not using an old credit card, it is better to keep it in a drawer and make recurring payments so that the bank does not close it due to inactivity.
Conclusion
Avoid these credit mistakes at all costs if you want to promise a secure financial future for yourself. While some credit score killers are brutal to evade, such as failing to make a mortgage payment because of unemployment or maxing out your credit cards because you are swamped with medical bills, many credit blunders are due to negligence and can easily be avoided.
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