A good credit score is crucial for financial success. It impacts your ability to secure loans, mortgages, and even determine the interest rates you’ll be charged. A score of 750 or higher is considered excellent and can unlock opportunities for favorable financial products. However, many people unknowingly make credit mistakes that can hinder their progress toward achieving a great credit score. By avoiding these common pitfalls, you can take control of your credit and improve your score significantly.
In this article, we’ll walk you through 7 critical credit mistakes to avoid in order to build a better credit score—one that could easily reach 750 or beyond. Let’s dive into the details.
1. Missing Credit Card Payments
Why It Matters
One of the most damaging mistakes you can make when building credit is missing payments. Payment history accounts for approximately 35% of your credit score, making it the most significant factor. Late payments, especially those over 30 days past due, can lower your score and stay on your credit report for up to seven years.
How to Avoid It
- Set up automatic payments: Ensure that at least the minimum payment is made each month to avoid late fees and damage to your score.
- Set reminders: If you prefer manual payments, use your phone’s calendar or a payment reminder app to alert you a few days before the due date.
2. Carrying High Credit Card Balances
Why It Matters
Your credit utilization ratio is another important factor in your score. It compares your current credit card balance to your total available credit. Carrying high balances (typically above 30% of your limit) signals to creditors that you may be overextended and could be a high-risk borrower.
How to Avoid It
- Pay down your balances: Aim to keep your credit utilization ratio under 30% of your credit limit. For example, if your credit limit is $10,000, aim to keep your balance below $3,000.
- Pay off debt in full: Try to pay off your balances in full every month to avoid accumulating interest and debt.
- Request a higher credit limit: If you’re unable to reduce your balance, consider asking your card issuer for a credit limit increase. This can help lower your utilization ratio and improve your credit score.
3. Opening Too Many New Accounts in a Short Time
Why It Matters
When you apply for multiple new credit accounts within a short period, it results in hard inquiries on your credit report. Each hard inquiry can temporarily lower your score by a few points. Additionally, too many recent applications can make it appear like you're struggling financially and seeking credit urgently.
How to Avoid It
- Space out credit applications: Don’t apply for too many credit cards or loans within a few months. If possible, apply for credit only when necessary.
- Choose wisely: Only apply for credit cards or loans that you’re likely to be approved for. Check your credit report and score before applying to ensure you're not wasting a hard inquiry.
4. Closing Old Accounts
Why It Matters
The length of your credit history makes up about 15% of your credit score. Closing old accounts may shorten your average credit history, which could lower your score. Additionally, closing an account reduces your total available credit, increasing your credit utilization ratio.
How to Avoid It
- Keep old accounts open: As long as they are not costing you excessive fees, it’s best to leave older accounts open.
- Use them occasionally: If you’re worried about an account becoming inactive, make small purchases on it every few months and pay off the balance promptly.
5. Not Monitoring Your Credit Report Regularly
Why It Matters
Errors or fraudulent activity on your credit report can significantly harm your score. If you don’t monitor your credit report regularly, you might not notice these issues until they become more serious.
How to Avoid It
- Check your credit report: You can get a free credit report from all three major credit bureaus once a year at AnnualCreditReport.com. Look for any errors or unfamiliar accounts and dispute them promptly.
- Sign up for credit monitoring services: Many services offer real-time alerts on any changes to your credit report. This can help you spot potential fraud quickly.
6. Ignoring Debt Settlement Options
Why It Matters
If you have overdue debt, it can remain on your credit report for up to seven years, even if you’ve paid it off later. Not addressing debt issues or letting them accumulate can damage your credit over time.
How to Avoid It
- Explore debt consolidation: Consolidating multiple debts into a single loan can help you manage payments more effectively and may improve your credit utilization.
- Consider negotiating: Some creditors may be willing to settle a debt for less than what you owe, or they may agree to a more manageable payment plan. This can help improve your credit score over time.
7. Using Credit Without a Plan
Why It Matters
Using credit haphazardly, without a plan or budget, can lead to overspending, missed payments, and high debt levels. This reckless behavior can hurt your credit score and your financial health.
How to Avoid It
- Create a budget: Track your income and expenses, and set aside money to cover your monthly credit card payments and other bills.
- Set goals: Establish short-term and long-term goals for saving, paying down debt, and improving your credit score. Stay committed to these goals for steady progress.
- Use credit responsibly: Only charge what you can afford to pay off in full each month. Avoid impulse purchases that can drive up your debt.
Start Improving Your Credit Score Today
Avoiding these seven credit mistakes can go a long way in helping you build a solid credit history and increase your score to 750 or more. Remember, achieving an excellent credit score requires time, patience, and responsible financial behavior. By staying consistent and avoiding common pitfalls, you’ll be well on your way to unlocking the financial opportunities that come with a top-tier credit score.
If you found these tips helpful, start applying them today. Your financial future depends on the steps you take now!