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Top 10 credit mistakes

Monday, February 04, 2019

Top 10 credit mistakes

Written by: Rising Point Solutions Regional Manager, Houston - Matt Brouse

 

 

Credit can be straight forward in some respects and completely confusing in others, especially when you are looking online, and you get multiple answers for the same question. We have compiled a list of the 10 most common credit mistakes, so that you can avoid them in the future and prevent you from taking a dip in your credit score.

10) Opening More Cards

Yes, there is such a thing as TOO MUCH credit. Although it is always good to have a few cards opened in your name to help you build credit, it is not always as easy as opening another card to increase the scores. In fact, you could take a small decrease in score if you already have too many cards opened. You want to have 3 to 4 credit cards opened in your name. For every card you open after 3 to 4 cards, the law of diminishing return kicks in. Opening a fifth and sixth card will not give you the same benefit that the first 3 or 4 did.


9) Applying for Too Much Credit

Not only is having too many credit cards opened a bad thing but applying for credit too many times can also have a negative impact on your score. If you apply for a loan and are denied, do not try to go to 10 different places to attempt to get the approval from someone else. It is not a bad idea to give a few places a try when denied, but when you start pulling your credit 4,5 and 6 times in the same month, you will run into issues with the inquiries pulling the score down. This is because the scoring formula sees multiple pulls in a short time frame as you trying to get credit you do not "deserve".


8) Auto Loan Pulls

Auto loan pulls are completely different than most other financing pulls of credit. When you go into an auto dealership often your credit will be pulled 5 or more times in one sitting. This is possible because the dealership will send your information to several financiers to get the best rate for you (or the dealership). Technically you can shop around for an auto loan through several different financiers and it will only show one inquiry that affects the score. So why does it matter if they pull the credit 5 times? More often than not the financiers that the dealership send your information to will code the inquiry differently than an auto loan. If the inquiry code does not show "auto loan" then the scoring formula cannot determine whether you pulled credit for an auto loan, a credit card, or a personal loan. If this happens you run the risk of each credit pull hitting you once, meaning you have pulled 5 inquiries in one sitting. This makes the scoring formula think that you are trying to get financing that you do not deserve. It is not uncommon to drop 10-15 pts. on a credit score just from attempting to pull your credit for an auto loan.


7) Maxing Out Cards

Maxing out credit cards makes it look like you are living above your means. Maybe you bought a few Christmas presents on a credit card instead of your debit because you were waiting for your holiday bonus to come in, or maybe you used the card for a business expenditure and you have not yet brought the balance down. On a month by month basis, having a high credit card balance, in respect to the credit limit, can drop your score 20 pts or more. Only use 30% or less of your credit limit during any given month. This ensures that no matter who pulls your credit or when they pull your credit, you have the highest score you possibly can have at that moment in time. BONUS: You always want the best score, right? Only use 1-19% of the credit limit, this will give you the most bang for your buck.


6) Not Checking Credit

 If you are not checking your credit monthly or at least every quarter (every 3 months) then you are doing yourself a disservice. In today's day and age, you never know who might have enough of your personal information or card information to make a purchase without your permission. If you do not know what is on your credit, then you do not know if everything reporting to your name is yours. Far too often someone else's info is being reported to your credit report or someone has stolen your personal information without you even knowing. If you are tracking your credit you can resolve these issues far quicker than if you find out at the time of your next financing pull.


5) No Documentation

 Anytime a creditor tells you they are going to do something, GET IT IN WRITING. We are all humans and we are all prone to mistakes. Do not take someone’s word that they will waive a fee, remove a late payment, or do anything else for you that might affect your credit. If you get it in writing it will be a lot easier to combat the mistake, as opposed to it simply being "your word against theirs". Creditors are prone to saying they will do something for you and forgetting to make a note, or simply never getting to it in the first place. The more documentation you have on an account or a promise made by a creditor, the more likely you are to be able to resolve an issue that might arise from it later.


4) Not Understanding the Fine Print

 Almost everything you sign now-a-days has fine print. Do not assume anything when it comes to signing paperwork. Often, there are early termination fees, monthly late fees, or service fees that are not necessarily listed in the initial summary of service. If you are asking questions and thoroughly reading the contract you are more likely to prevent surprises in the future. This is extremely important in contracts that promise to pay your service agreement if you switch to use the new companies service. Also, be aware of any "Money Back Guarantees", usually these come with almost impossible terms that are built in to prevent the company from having to pay out if you are not satisfied with the service or product.


3) No Credit

 Many people will avoid opening credit in their name because "the less debt you have, the better off you are". Although this can be true in some sense of the manner (less debt is not a bad thing) it does not help you build credit or raise your credit score. If you have had some damage to the score in the past, and currently have NOTHING opened in your name, it is almost always in your best interest to start building credit, even if it is just a small credit card or a small personal loan. This will help you establish credit so that you can begin moving your credit score in the right direction. Unless you can buy a house or car with cash, it is probably in your best interest to have some sort of credit score reporting, even if it is a work in progress.


2) Making Late Payments

Obviously late payments will hurt your credit, but did you know that you can drop 80 pts or more from one single late payment? The higher your score is when the late payment hits, the lower your score will drop. If you have already made several late payments in a row, then you might only drop 5-10 points, however, if you have perfect credit history, a late payment can drop you below the 700's instantly! Even if you already have a subpar or fair credit score, you still want to avoid any late payments. Recent late payments impact your credit score the most.


1)Not Contacting the Creditor

 Everyone messes up occasionally or maybe you have been going through a rough financial time. Instead of waiting it out and hoping for the best, TAKE ACTION!!! Do not be afraid to call the people who you hold loans with, often you can work something out with them to split the payments in half or back end a payment or two. If the creditor knows what is going on, they are more willing to work with you on resolving the issue. They want to be paid their money as badly as you want to stay on time. However, if the creditor does not know your situation, they will always assume that you are avoiding paying them and could potentially send you to collections. So, suck up your pride and make the call that no one wants to make. The sooner you tackle your situation, typically, the better the results. Do not let yourself get into a hole you cannot get out

of.

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Disclaimer: Improvement of your credit score and/or particular results vary per client. We cannot guarantee any results or improvement as stated in our Guarantee Disclaimer. Following our best results practices and educational consulting, we do typically see improvement in credit scores.