Do you understand what affects your credit score? Want to avoid common mistakes? Although I’m technically not in this field, I have learned a lot over the years about this topic. Below are tips I’ve gleaned. What can reduce your score?
1. Not reading the fine print. Make sure you know what the contract says. If you don’t understand the meaning of the content, ask someone you trust to help you. Signing a contract, application, etc without fully understanding the meaning can cause a significant issue. Don’t give in to pressure to quickly sign (especially if the person pressuring you is the other party to the contract). If they have nothing to hide, there should be no reason you aren’t given time to read the text and understand the meaning of each section.
2. Not watching the interest rates on your credit cards. You may have signed up for a credit card with an introductory rate for a short period of time. The company figures you probably won’t remember when the rate changes and will not pay off the balance before it increases. Look at your statement every month and when you see an increase, determine if you can pay off the balance or perhaps move to a lower rate credit card (although transfer fees are usually 2-3% of the amount transferred, so it may not be a good option).
3. Not paying on time. Failing to pay timely will likely incur a late fee between $25-$40 each time. This not only is something that can be avoided with proper planning, but paying late many times increases your interest rate to the maximum rate allowed. This increase may significantly impact the amount you must pay each month. Even if you pay your balance off each month so the interest rate has no impact, failing to pay on time will reduce your credit score.
4. Opening or closing many credit cards at the same time. Each time your credit is checked, your score drops a few points. You also don’t have much credit history on these accounts once they are approved which drops your score. If you close accounts, you lose the valuable history you’ve developed. It also reduces the amount of available credit which may put your debt ratio higher, thus lowering your credit score.
5. Co-signing for someone else’s loan. Many time friends or family can’t qualify for a loan on their own and ask for a co-signer, and someone tries to be nice and help out. Unfortunately more times than not, the person defaults, pays late, etc. When that happens, your score drops and you are responsible to pay the debt.
Avoid these pitfalls to help you stay on top of your credit score, and thus be prepared in the event you ever need a loan or credit increase.
Candy
