What’s a good credit score? What defines that?
Answering that question requires 2 things. The first is knowing what boosts your score.
And the second is knowing mistakes that drop it.
If you’re not able to answer this because you have neither a credit card or a credit score, there are credit cards you can get with no credit so it’s easy enough to start getting yourself a credit score.
Today, we’ll help you with the second. We’ll discuss 4 mistakes that drop your score!
#1 – Applying for New Credit Cards.
It’s not owning many cards that’s the problem. It’s the process of getting one.
When you apply for a credit card, a bank does an inquiry on you.
That’ll be a hard inquiry, which is an attempt to get an accurate credit report.
Hard inquiries drop your credit score. And you want to avoid those as much as possible.
Why Inquiries Harm Your Score.
Inquiries imply that there’s something wrong with your debt payments.
It implies that you need to be thoroughly checked for a loan. And this means you might have a history of loan mismanagement.
So again, avoid those when you can…
But What if I Need a New Credit Card?
You can go for that. Just be sure that you’re using it for business.
We do not recommend credit cards for personal consumption. That’s a bad debt policy, and in the long-run, harms your score.
#2 – Shutting Down Credit Card Accounts.
After reading the previous point, you may be thinking…
“Maybe I should close most of my credit accounts. That’ll save my credit score, right?”
Unfortunately, that’s another mistake people make. They assume that closing accounts cleans their reports.
Debt Utilization Matters.
Basically, part of what’s a good credit score is debt length.
The longer you use debt, the higher your score. And in fact, the duration of your debt use accounts for 15% of the final calculation.
So closing a credit card is counter-productive. If anything, you should pay off your credit card debts.
After that, learn to use that card conservatively…
When you close a credit card account, its history is deleted from your credit report.
And that’s why it dips your score. Because now, it seems as if your credit history is shorter than it really is.
However, if you feel that you must close accounts, then start with the shorter ones.
That way, you lose less of your history, and your score!
#3 – Spending to Your Credit’s Limit.
Your loan limits get reported to credit bureaus.
If you use your credit card to its limit, it’ll affect your score negatively.
In fact, part of what’s a good credit score is how far you are from your loan’s limit…
Let’s say you have a credit card with a $10,000 limit.
The wise will tell you to only use 30% of that at most – which is $3000.
Going any higher shows bureaus that you’re too reliant on debt. And going higher causes drops in score.
However, if you have to (in emergencies for example), try not to go over 50% of your card’s limit.
#4 – Not Paying Your Card Bills On-Time.
One of the problems with credit cards is that they’re billed monthly.
And there’s a minimum charge you have to pay. That goes higher too, depending on how much credit you used.
And you have to pay that minimum (and) on-time. Otherwise, it affects your credit score.
It Affects it Horribly.
At least 35% of your credit score is defined by credit history. So not paying on-time can heavily damage your score.
Another Reason to not Max Our Your Card…
If you have less loans on your card, you pay a lower minimum/month.
So now, it’s easier to keep up with your debt payments. And you’ll probably never miss one.
This keeps your credit score in check. And it ensures you’re not struggling to fit credit card bills with other important utilities.
Credit cards are a serious responsibility.
However, many people don’t treat them that way, especially youth.
They usually get their first cards around college. And many adopt bad spending habits with them. It’s not the end of the world if you do make mistakes, as you can find out how to fix your credit on your own nowadays, but it is always better to make sure you know exactly what you’re doing before signing up to one.
So if you do own a card, then know that it affects your financial future.
Understand that your debt spending habits also define your auto loans, your mortgage, and possibly future business opportunities!