If you don’t know the first thing about credit, you probably don’t know how to take charge of your credit. Poor credit management is crippling and impacts qualifying for loans, getting auto insurance and even opening a bank account. People develop bad credit because they practice bad credit habits. These habits often go unacknowledged until a creditor rejects an application. Credit card companies and lenders aren’t to blame for your lack of credit education. Avoiding the pitfalls of bad credit requires doing your own research and then adopting habits that are certain to boost your credit score.
Bad Credit Habit #1: Ignoring Your Credit Report Credit reports dictate whether you’re approved for credit, and this document provides creditors with a snapshot of your current accounts, amounts owed and payment history. Monitoring your report confirms the accuracy of accounts. If you never review your report, you’ll never learn of errors until after you’re denied for credit. AnnualCreditReport.com is your source for one free yearly report from each of the reporting bureaus.
Bad Credit Habit #2: Carrying a High Balance Creditors won’t complain if you only pay the minimum. In fact, creditors welcome this bad habit. It’s how the company retains your business. Minimum payments do nothing to help your credit, especially if you carry a high balance. Maxing out your credit cards or keeping balances close to your limit kills your score. The higher your balances, the higher your credit risk, and this translates into fewer credit approvals.
Bad Credit Habit #3: Skipping Credit Card and Loan Payments Timeliness is the basis for good credit. Defaulting or submitting payments late will cause your credit score to plummet. And if you develop a routine of paying late (or not at all), financial companies might take one look at your application and reject your request.
Bad Credit Habit #4: Too Many Applications How many times has a salesperson suggested that you apply for credit to receive a discount on your purchase? As appealing as this offer may sound, salespeople don’t disclose how discounts are subject to credit approval, and that each application appears as a credit inquiry on your credit report. Inquiries are not trivial, and each one takes points off your score. Periodic applications cause minimal damage. But complete too many credit applicants back-to-back and your credit can go from bad to worst.