5 Common Credit Blunders
…And how to fix them.
Nobody is perfect but, when your credit score is at stake, you need to pay extra attention because one mistake can destroy your credit score and derail any chance you had of buying a house, car, or getting a student loan.
Let’s take a look at the 5 most common credit blunders consumers make and how to fix them.
1. Forgetting to Make a Payment
Paying your bills on time is one of the most important factors used to calculate your credit score. A recent late payment can lower your credit score up to190 points and stay on your credit report for up to 7 years. This is why it is so important to make your payments on-time.
If you aren’t sure whether you can afford to pay something on time every month, don’t buy it. And if you are a bit disorganized and forgetful – set up auto bill pay with your bank or creditor.
2. Medical Bill Issues
Did you assume that your insurance company paid all your medical bills? Never assume anything. Check with your doctor to make sure that all of your medical bills had been paid. Call your insurance company to make sure that they pay your bills on time. Insurance companies don’t care about your credit score and if they take too long to pay your bills, the debt may go into collections before it is paid.
Stay on top of your insurance company to make sure that they pay your medical bills in full and on time. And keep an open line of communication between your doctor so that they can let you know if there are any unpaid bills before they send them to collections.
3. Co-Signing On A Loan
Being a co-signer (or #2) on a loan means that you are 100% liable for the full and complete balance of the debt. There have been so many stories of consumers getting burned by friends, relatives, loved ones – all because of co-signing on a loan. We have people calling us who still don’t understand why an account is reporting on their credit report which is not theirs, it belong to their brother or cousin, they only co-signed on the loan.
Let’s make one thing perfectly clear. When you co-sign on a loan, whether it’s a car, furniture, or credit card – – you are saying that if the borrower cannot pay the debt, you will be responsible for 100% of the loan. Not 50% of it, ALL OF IT. You are liable for 100% of the loan if the borrower defaults. And any late payments on the account will be reported to your credit history as though you paid the account late.
Do not co-sign for anyone unless you are both willing and able to take over their debt and ruin your credit score. Plus, there is always the unfortunate issues which arise when having financial ties with friends and loved ones. Theres no faster way to ruin a relationship or friendship than by co-signing on a loan.
How do you avoid this issue? Easy, JUST SAY NO!
4. Maxing Out a Credit Card
Maxing out your credit card could lower your scores by as much as 150 points. Credit cards are not your money, it is the bank’s money. Every time you use a credit card you are borrowing that money from a bank with the promise to pay them back. Maxing out your credit cards makes you look like you do not have enough cash for your everyday expenses – and that scares future lenders, thus your scores decrease.
Keeping the balance of the credit card at or below 20% of the credit limit shows lenders that you are using the credit cards for convenience and this increases your credit scores. One more fun fact, FICO did a study a few years ago on consumers with 800 scores and above, their average utilization rates were 1%. This means that if their credit limits were $100,000 – the average balance was $1,000. Keep your credit card balances as low as you can and your scores will increase.
5. Closing Old Accounts
What do you do when you pay off a credit card and never want to use it again? Close it, right? WRONG! About 15% of your credit score is calculated from the average age of your open/active credit history. This includes both open installment and revolving accounts. Closing your old credit card accounts may shorten your average length of credit history and lower your credit score by as much as 75 points.
If you’re dead set on closing an account, start with the youngest ones first, this way your average age of open accounts will still remain high and your credit score will not be damaged.
Protect your credit scores and think twice before doing anything which may damage your credit.
And if you need help on repair your credit, we’re here for you 24 hours a day, 7 days a week.
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