Some credit errors are more serious than others. Even small mistakes, such as paying your credit card bill one day late, can lead to a penalty fee. However, it is not enough to prevent you from getting a mortgage. Even small mistakes can turn into full-blown disasters.
1. Financial Mistakes That Can Tank Your Credit
New data has revealed that Americans are known for using credit cards to get more debt than they need. However, the average FICO score of consumers is 700. This is not bad considering the 850 highest score possible and the fact that perfect credit records are rare.
You should celebrate your credit score if you are one of the many Americans who have excellent credit. But don’t be too proud. Sometimes, a single mistake can turn a high score into a low one or worse, even downright poor. Here are some steps to avoid if you want to protect your credit.
Missing A Payment
Your payment history is one of the most important factors that determines your credit score. If you have a bad habit of not paying your bills, your score will plummet. You may not know that even one missed payment can cause serious damage to your credit score. Credit.com states that a first 30-day default can cause a FICO score of 780 to drop by 100 points. Contact your lender if you forget to pay but have a good history. Your lender will most likely agree to your request as long as you are a good customer.
Opening Too Many Credit Cards Or Accounts At Once
You will need to complete a credit inquiry before you can apply for any type of credit line, including a loan or new credit card. This is logical: Lenders want information about the people they are dealing with before approving a loan. However, too many credit inquiries can negatively impact your credit score. It can also give lenders the false impression that you are borrowing more than necessary. You can open new accounts slowly and steadily overtime to ensure that your credit report does not become flooded by inquiries.
Using Too Much Of Your Available Credit
Maximizing your credit limit can be detrimental to your credit score and your finances. Your credit utilization ratio is one of the most important factors lenders consider when assessing your creditworthiness. It represents how much credit you have available at any given time. Your credit utilization ratio should not exceed 30%. This can raise red flags even if your payments are on-time. For example, if you have a $10,000 credit line, you shouldn’t charge more than $3,000 in one go.
Remember that one person can have more debt than another, but have a higher credit utilization ratio. Imagine that your total line credit is $10,000 and that of your neighbor is $20,000. You may have $4,000 in outstanding credit and your neighbor has $20,000. However, you will have a higher credit utilization ratio. Your neighbor will use 40% of his credit while you will have $4,000 in debt. It’s not about how much actual debt you have, but how much of your credit you use.
Co-signing A Loan
You won’t have to cosign for a loan with another borrower, but it could cause credit problems. If the borrower fails to make payments, it could cause credit problems. Co-signing a loan means you share some of the responsibility for paying it on time. Credit scores could suffer if the primary borrower defaults. You can avoid this by being very cautious about the loan you cosign and ensuring that the borrower has the ability to make the payments.
2. How A Poor Credit Score Can Affect Your Quality Of Life
The score is something that most consumers are familiar with. If your credit score is high, you will be able to get the loan you need at a reasonable interest rate. You’ll likely be denied a loan if your credit score falls below 620. If you are accepted, you may pay more interest.
Most consumers don’t realize or consider how credit scores can impact their quality of living. Your credit score can have a significant impact on your life, from your job to your family to your relationships and many other things.
Money is the third most common cause of divorce. This can be due to how one or both of you handle your finances. Arguments can start and fester if one of you isn’t fiscally responsible. You may also feel stressed when you try to get a mortgage, or if your budget is in debt. When your credit score is poor and you are looking to buy a house or get out of debt the stress can increase and spread to other areas of your life. It is possible to stop financial problems from affecting your relationship.
You apply for utilities, such as water, Potomac Edison and gas, just like you would for credit. This means that companies will examine your credit history, credit score, and make their decisions accordingly. How will this impact your quality of life? If you are not able to pay your bills on time, the utility or telephone company may request a deposit. The deposit can take money out of your budget. If you can keep your payments history clean, this will give you more peace of heart.
Lastly, Maryland landlords want to see proof that you can pay your rent on time every month. They will also check your credit score and credit history to see if there have been any past late payments, evictions or other debt.
3. Rebuild Your Credit With These Tips
Your credit scores may be lower than you want, but you can change that! Because credit scores are a result of your credit behavior, the steps you take to improve your credit score over time will be reflected in positive credit scores. Credit scores are based on all actions you take with credit.
- Pay all your Maryland Bills on Time
- Think About Your Credit Utilization Ratio
- Consider a Secured Account
- Ask for Help from Family and Friends
- Be Careful with New Credit
- Get Help with Debt
Negative information can be mitigated by taking positive steps like making timely payments. You should keep in mind that making a payment today to an account with an outstanding balance can take up to 30 days to show up on your credit reports. Fortunately, you have the ability and power when it comes to building and rebuilding your credit.