Credit Score Pitfalls

credit score pitfalls

courtesy skibalaw

A low credit score is one type of financial behavior that creditors do not want to deal with. Creditors gravitate to individuals with high a credit score and avoid those with low scores. If you want to stay on the good side of your creditors you may want to avoid these 4 common pitfalls.

#1) Payment History

Missed Payments

The habit of missed payments is a habit creditors can do without. If you continually miss payments you are more likely to continue the practice. Do it once and you’ll probably do it again so don’t let yourself get into that habit.

Late Pays

It pays to never ever make a late payment. Just one late pay can carve 100 points out of your credit score. If you are over 90 days late the damage to your credit will be around for years. Find a way to remind yourself about payment due dates so that you don’t find yourself making excuses for late pays.

Your payment history makes up 35% of your credit score; that is the largest part of your score. Improve your history by never missing a payment and always pay on time. If you cannot avoid that at least notify your creditor. If it’s your first time your creditor may give you a break and work something out with you.

#2) Credit Card Max-Out

Credit Utilization Factor

When you run up credit card balances to close to your credit card limit you risk maxing out your credit card. At that point creditors see your debt as almost reaching the point of no return.

Your credit utilization makes up a big chunk of your credit score, 30% to be exact. Manage your credit utilization factor by keep your debt under control.

#3) Credit Cards For All The Wrong Reasons

To Meet Basics

Using your credit cards to meet your basic needs is a no-no. Creditors see that as a bad sign. If your personal income cannot pay for your food, housing and clothing creditors see that as a sign that you may be in financial trouble.

New Is Bad

When you open too many new credit cards you give creditors an uneasy feeling. The interpretation is that you are irresponsible. Are you overextending? Will you be able to make your payments? Will you end up making late pays?

One To Cover The Other

Using one credit card to pay off another credit card is headed in the wrong financial direction and sends a red flag to creditors.

To a mortgage company, landlord, employer and utility company your credit scores tell a lot about you. Even if you are the perfect candidate for a job or a nice tenant, if your credit score is too low you could be passed over. If your credit score needs improvement, do it as soon as you possibly can.