Consumer Tips
Consumers Beware: This Can Hurt Your Credit
The way in which we do business is evolving and your credit score may be affecting your daily life more than you think. For example, landlords, insurance companies, and employers are now performing credit checks as a way to evaluate your personal financial character.
Credit scores range from 300 to 850 and a score over 700 is generally considered to be "good" by most creditors. Unfortunately, reaching that number is not quite as simple as paying bills on time and as agreed. While payment history accounts for 30% of your FICO score, there are several other factors that contribute. Here are some common credit mistakes to avoid:
- Not checking your credit report regularly.
Request a free copy of your credit report each year from AnnualCreditReport.com. Familiarize yourself with your credit history and review it for accuracy. Knowing where you stand will help give you the tools needed to increase your score. - Having too many credit inquiries.
Generally, six or more inquiries within a six-month period of time will scare a lender. Applying for loans on the Internet and transferring balances on credit cards can also have negative consequences. However, most credit scores are not affected by multiple inquiries from auto and mortgage lenders within a short period of time. - Borrowing more money than you can easily afford to repay.
Your credit score is based in large part on how much money you have borrowed. A good rule of thumb is to borrow no more than 30 percent of your income (this includes mortgages, auto loans, credit cards, etc.) - Staying out of debt.
Having no credit history is nearly as bad as having poor credit history. From a creditor's perspective, if you have stayed out of debt your whole life, they have no way to judge how you would handle a loan. Maintaining several types of accounts shows that you are financially responsible. According to myFICO, your credit mix (credit cards, store charge cards, loans, etc.) accounts for 10% of your score. Keep in mind you do not have to carry balances on your credit cards to build good credit. It's perfectly fine to use them and pay the balance in full each month. - Making late payments.
There are several negative consequences of making late payments and the "Universal Default" clause is one of them. Under this clause, a creditor may raise your interest rate if you are late on credit obligations. - Closing old accounts.
It may seem wise to close old, unused accounts, but doing so could shorten the length of your credit history and harm your score. Credit history makes up a whopping 15% of your score. If you choose to keep old accounts open, be sure to keep tabs on them regularly to be certain they are not being used fraudulently.