For many individuals, building or bettering their credit score is their most pressing financial goal. If that’s true for you, our wealth strategists can help you adjust your financial decisions to make this happen. While it may take some time to get your credit score where you want it to be, one wrong move could set you back even further, and pretty quickly! It’s important to understand what can have a negative impact on your credit, so you can avoid sabotaging your progress. Check out some of the most common mistakes you can make in regard to your credit.
Checking Your Score Too Frequently or Not Enough
Staying informed about where your credit score is can help you keep track of the progress you are making. Checking this on a consistent basis is the best way to keep an eye on how building your credit is going, and can help you spot potential problems before they impact your score drastically. There are many sources for monitoring your credit, and our wealth strategists and accountants can assist with this as well.
While staying on top of things is a good idea, you also want to be sure that you aren’t checking your credit too frequently. Depending on the source you utilize to do these credit checks, you may be unintentionally chipping away at your credit score. Some credit monitoring services impose a fee on your score each time you use them, so gathering a simple pulse on your fiscal health can knock a few points off your credit score.
One of the biggest impacts on your credit score is your payment history. Consistently avoiding certain bills, or always paying your bills late can quickly drive down your credit score. This impact can be hard to negate after it shows up on your credit report. It takes time to build back up a positive payment history, so it is best to avoid making a mistake in this area.
Making Minimum Payments
Sometimes, making minimum payments on your credit cards is the most you can afford financially. However, if you are in a place where you can pay off your credit cards faster, it may be in your best interest to do so, so you can afford paying more interest than necessary. Many credit cards operate at a high interest rate, so the total amount you pay back over time could be a drastic amount more than what you originally owed. This can have a negative impact on your credit score, as it shows a high balance or a high utilization of your credit.
Applying for Multiple Cards
In order to build credit, consistent payment history, available credit, and more, are all factors that need to be considered. One of the easiest ways to build credit is by having a credit card for common expenses and then paying it off on a monthly basis. While looking for this ideal card, however, many individuals apply for multiple cards at one time. This can have a negative impact, as most credit card companies run a hard check on your credit, and each hard check can potentially knock off a handful of points or more off of your score.
Closing Old Accounts
If you have spent some time paying off your credit card debt, and have finally made that last payment to clear your remaining balance, it may be tempting to close out the account and have it cleared from your plate completely. However, this can have a negative impact on your credit score, as it shows a decrease in your total amount of credit available, resulting in a higher credit utilization rate. Keeping the account open and making small purchases that you can regularly pay off is the best way to keep building your credit now that your card has been paid off.
While the push to improve your credit score is a long-term effort, taking small steps along the way to avoid credit mistakes can greatly reduce the amount of time it takes to get to where you want to be. If you want to see how you can better your financial circumstances, consult with one of our wealth strategists today.