5 Credit Score Pitfalls to Avoid
1. Generating too many inquiries
Shopping around before choosing an institution for a loan of any type can help you find the best rate—and that can translate into thousands of dollars in savings over your loan’s lifetime. While you may be saving, it’s best to use moderation. When you receive a quote on interest rates, lenders pull a hard inquiry that shows up on your credit report. If you request these inquiries over a period longer than 14 days, each quote shows up individually. When you’re comparison shopping for a loan, gather your quotes in a short period (ideally within two weeks). That way, your credit will take less of a hit.
2. All those little things add up
Unpaid bills from a variety of sources can cause your credit score to plummet if they’re unresolved. Think that library late fee or medical invoice from 15 years ago doesn’t matter anymore? It could if the library system turns that account over to collections or marks it as “delinquent.”
In most cases, this is an easy fix and just a matter of settling the outstanding payment. To check for these issues, pull a credit report—you can get one for free each year from the three credit-reporting agencies Experian, TransUnion, and Equifax.
3. Incorrect information
You’ll want to pull your credit report for more than to see if you owe your librarian a few bucks. Errors occur and businesses make mistakes. If your credit report is harboring incorrect information about your financial records, this could drag down your credit score. If your report has an error, call the credit bureau that issued the report and file a claim. Correcting errors can be long and arduous, but it’s worth the effort in the long run.
4. Using your credit a little too much
It is the standard thought that using your credit cards for everyday spending is perfectly fine if you pay off your balances—on time and in full each month. Then you may be wondering why your credit score is still suffering. Even if you’re paying it off responsibly, maxing out your credit card can harm your score more than you might think. What matters here is how much credit you have and how much credit you’re using. For example, if you have a $1,000 line of credit and you charge $999 each month, it’ll reflect negatively on your credit score even if you pay off every dime when the bill comes due. This balance of limit versus spending is known as a credit utilization ratio. Maintaining a high credit utilization ratio will hurt your score, try to keep balances low on your lines of credit. Make smaller purchases and pay those off staying well below your limit each month.
5. Not using credit at all
The opposite of what you would think it true in this case: the silent way to ruin credit is by not using it at all. If you’re afraid of hurting your credit more or if you’ve been scared off the idea of using credit, you may negatively impact your score. With no credit history, there’s nothing to show that you’re a responsible user of credit who can manage balances and payments. Inactive accounts may even default to closed over time, and that too can ding your score. It might not be fair, but the fact remains that those looking to rent an apartment need to develop and maintain strong credit scores. If you want to secure the best apartments out there, be wary of these credit score pitfalls that can hurt your score.
