Credit Mistakes to Avoid

A hurricane might have signaled the start of your financial year, causing major damage to your credit score, but just because things started out a little rough, doesn’t mean the rest of your year should be denied sunshine. Here a few credit mistakes to avoid for the rest of the year and beyond:

1)Missing a bill payment.

Making late bill payments, or not making them at all, can reflect negatively on your credit. In some cases, there’s a grace period, during which you won’t be penalized. In others, you may get a derogatory mark on your credit report for being 30, 60 or 90 days late. This will negatively affect your percentage of on-time payments, a significant factor of your credit score. If your payment is severely delayed, your debt may be sent to a collections agent, which will be indicated on your credit report.

2) Maxing out your credit cards.

An important factor of your credit score is your credit utilization rate or how much of your available credit you’re using at a given moment. When you apply for credit, creditors consider 30% or less a healthy utilization rate; you’re using enough credit to prove you’re responsible, but not so much that you’re relying too heavily on it.

 First of all, make sure you know your limits, on each card, that is. Then, calculate 30% of your total limits. For instance, if you have two credit cards, one with a credit limit of $20,000 and the other with a limit of $10,000 your total limits would be $30,000, and 30 percent of that is $10,000. To maintain an optimal credit utilization rate, you should never charge more than $10,000 total on your cards.

3) Chasing rates.

If you have debt, you may be tempted to open a new account with a 0% interest rate (or at least one lower than your current rate) and transfer the balance. The idea here is that you can take that time to pay off the debt without incurring extra interest (or less interest than you would have otherwise). The problem with this can be that you’ll be opening a new account, which is a “hard” inquiry on your credit report, and too many of those can lower your score. Plus, you’ll also get hit with a balance transfer fee, which is usually 3% to 5% of your transfer amount. And, if you don’t pay off the transferred balance during the introductory period, many cards require that you pay the interest rate on the entire transferred amount.

4) Co-signing someone else’s loan.

When you co-sign a loan, you’re essentially using your good credit score to help another person get approved for a loan they couldn’t get on their own. And your credit will be affected by how that other person pays back the debt. If they default on the debt, your credit will suffer as well … which is why there are lots of horror stories of people co-signing friends’ or family members’ loans and having their credit ruined as a result.

Don’t be talked into co-signing on a loan. It can be hard to say “no” to a family member or close friend, but remember that derogatory marks, like accounts sent to collections and late payments, stay on your credit report for seven years.

These marks will decrease your credit score and hinder your chances at getting approved for your own credit in the future. And no one wants to be caught in a line of bad credit, because life is always better with good credit and a copy of your credit report from CRIF NM.

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