Understanding the ins and outs of your credit score may seem overwhelming, but in actuality, learning just a few simple tips can make all the difference to your credit score. Some of your financial behaviors, like paying your bills on time can help you maintain an upstanding credit score, while failing to pay your bills can plummet your otherwise good credit score. To help show you the credit score ropes, the following outlines the top three actions you should avoid.
1. Missing payments
If you’re not already aware, your payment history is responsible for making up a huge portion of your credit score. In fact, 35 percent of your credit score includes the payments you’ve made and missed. Therefore, if you have forgotten to pay your credit card bills or loan payments, your credit score will drop as a result because not paying your bills reflects negatively on your financial responsibility.
Luckily, this is an easy area to fix. Although you’ll have to wait seven years for those negative payment marks to disappear from your credit report, making future payments on time will help to bump up your score. Make it your goal to send payments in before their due dates, and set up all the reminders you need to make it possible. Mark your calendar, set alarms, and request automatic reminders from lenders.
If not having the funds to pay your bills at the end of the month is the real problem, create a budget, and set aside money at the beginning of the month to designate to your bills at the end of the month. This will prevent you from using that necessary money on other purchases.
2. Maxing out your credit card
Your credit utilization rate is the second biggest factor that goes into the calculation of your credit score as it makes up 30 percent of the grand total. Maxing out your credit cards or using a high percentage of your available credit can leave you with a high credit utilization rate. And unfortunately, more used credit means a lower credit score.
Using less than around 30 percent of your available credit can help you lower your credit utilization rate and raise your credit score.
3. Ignoring your credit report
It’s not uncommon for consumers to find errors on their credit reports, and some of these mistakes even have the potential to lower their credit scores. In other cases, consumers experience identity theft, but they have no idea it’s occurred if they haven’t kept an eye on their credit scores. If you’re not already checking your credit report at least once a month, the possibility of errors and identify theft should encourage you to do so.
By law, every 12 months you can request a free copy of your credit report from the credit bureaus. You should take the time to scan your credit report for any potential mistakes or evidence of identity theft. Also, use this time to see in what areas you can improve to help increase your credit score.
A good credit score is your ticket to low interest rates and a variety of opportunities to borrow money, but a bad credit score on the other hand could limit you to bad credit loans, which tend to have more expensive fees and higher interest rates. Although bad credit unsecured loans can help during financial emergencies, why limit yourself when you can otherwise improve your credit score?
Chloe Mulliner is a writer and editor for several websites dedicated to credit cards, emergency cash advances, personal loans, credit and more. She recently moved across the country from Virginia to California, where she currently writes about all things credit.