3 Common Mistakes that Lower Credit Scores
Having a high credit score is important all the time, whether you are buying a home anytime soon or not. Your FICO score and credit report are so vital to getting any type of loan, and this series will give you the financial strategies you need to get your credit score as high as possible.
Whether you know it or not, there might be things you are doing that can affect your credit score for the worse. Even if you aren’t buying a home anytime soon, you don’t want to be surprised by your credit score when you want to buy a car or refinance, for example.
The decisions you make can hurt or help your score, and that’s why it’s better to have an understanding of what can impact your credit score. Even decisions or actions you think will help your score can actually hurt it!
Sound confusing? You’re not alone since many really smart people don’t know the difference between fact and fiction when it comes to building a good credit score.
Let’s clear it up for you so you can avoid making these mistakes below:
I’m caught up now with late payments so my score is fine.
It’s important to pay all of your bills on time, every time! Doesn’t matter if you’ve caught up … you were late and your account knows that.
If you must pay late and want to avoid damage to your score, pay the accounts that report to credit bureaus first. You can find this information by tracking your account statements. Each account reports to the credit bureaus on the day that your statement posts.
Credit reporting agencies say their records are updated “routinely”, but this does not mean instantly. It may take one to three weeks for your credit card company to report a payment or paid balance to the credit agencies. For example, let’s say it is the 25th of the month and you have a $1,000 balance on your credit card. Maybe you pay your credit card to $0 at the end of every month. If your statement posts on the 28th of every month, it will still report with the $1,000. You would have to wait until the 28th of the next month without charging anything to that credit card in order for the $0 balance to report to the credit bureaus.
This is where your own credit report and knowing the date that your statement posts on each account will be helpful in ensuring you pay your balances down at the right time.
This is another reason having a high credit limit while keeping a low balance can be beneficial for your bill cycle and making regular payments. You can call your credit card companies to see if they will keep your limit, BUT only do this if you won’t be tempted to max out your higher credit line.
Dollar amounts matter in credit scores.
It may sound crazy but dollar amounts don’t matter in FICO scoring. The effect on your score is the same for a $1 late payment as a $1,000 late payment.
So don’t always take the advice to pay the highest bill first if you still have smaller minimums to pay.
Even if you are only able to make the minimum payment that month, it is better than taking a late payment on that account. Once a late payment hits your account, it can take 1-2 years of on time payments to recoup the damage it does to your score.
If you are just getting started, you can set calendar reminders for each account to help you manage these payments.
Closing credit card accounts helps my score.
Don’t do this!! If you cancel a card, you may have just thrown away your chance to increase your score by continuing to build on years of positive credit.
When you have a long-term and positive account history with an account, it can really boost your score. It’s better to keep your cards open and active, using them for small purchases.
Avoid these mistakes and keep your credit score high. You never know when you’ll need a loan for a new home, a new car or want refinance to a lower rate! If you have any questions, I am here to help! Just email me at email@example.com
I'm McCall Carter and I love helping first time home buyers make their first home more affordable and I love helping sellers looking to move up to their forever home. Let me know how I can help you make your real estate dreams come true.
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