Working to earn and maintain great credit scores is a lot like trying to reach and maintain a healthy weight. It’s easy for some people and next to impossible for others, like me.
Both goals require hard work, consistent effort, and no cheating. And when you land that FICO or VantageScore of 750, it doesn’t mean it’s time to sit back and relax. Instead, the need to pay close attention to your credit is perhaps even more important — because it’s a whole lot easier to torpedo an already good score than it is to lower a poor one.
The long and short of it is: No matter what your credit score is, don’t make these harmful credit mistakes:
Mistake No. 1: Ignoring Your Credit Reports
You shouldn’t assume that your credit is okay just because you had great credit scores the last time you applied for a loan. Mistakes appear on credit reports all the time. In fact, the Federal Trade Commission released a study in 2013 that found an estimated 21% of us have errors on our credit reports.
One out of five might sound low, I guess — but if you are one of the 21%, then 100% of your credit reports have errors, so keep that in mind. Further, the study found that many of those errors could ultimately lead to the consumer paying more for loans and insurance premiums.
Avoiding the mistake: Instead of assuming your credit is still in good shape, it’s a good idea to develop the habit of checking and reviewing your credit reports often (perhaps monthly, but at least every few months). You can easily access all three of your credit reports for free every 12 months at AnnualCreditReport.com. There are also many websites where you can check your credit reports and scores online, often for free. Plus, a number of credit card issuers give cardholders free access to their scores on a monthly basis.
If mistakes occur, you should contact the credit bureaus immediately. Keep in mind that they don’t know if something is an “error.” Only you know what’s supposed to be on your credit reports and what’s not. They don’t have any obligation to correct errors unless you ask them to do so.
Mistake No. 2: Making Late Payments
The most important factor in your credit scores is the presence or absence of negative information. As a result, one of the fastest ways to turn 750 into 600 is to miss payments, even if the missed payments are simply an oversight. For example, if your student loans come out of deferment and you missed the first three payments because you forgot they were due, your credit scores could take a serious hit.
Avoiding the mistake: Life gets busy, so it is important to make and stick to a schedule each month to ensure your bills are always paid in a timely fashion. Setting up automated payments for bills such as credit cards and student loans can help to serve as a safety net in the event you ever forget to make a payment by the due date.
Additionally, pay close attention to your mail, email, and voice mail in case a creditor ever tries to contact you regarding a past due balance you may have overlooked. You should also consider making this “paying your bills” part of your financial life a priority that gets your undivided attention every month.
Mistake No. 3: Charging Too Much On Your Credit Card Accounts
Many consumers don’t realize that charging an amount that is too high relative to your card’s credit limit can actually lower your credit scores — by a lot — even if every single payment on the account is made on time.
There’s a metric in all scoring systems (FICO and VantageScore) called the “revolving utilization” percentage. That percentage is simply the balance on your credit cards relative to the credit limit, as reported to the credit bureaus. The higher the percentage, the lower your credit scores — it’s that simple.
The people with the highest credit scores are going to have utilization rates lower than 10%. That means if you have a card with a $10,000 credit limit, you’ll want to stay at or below $1,000, even if you make the minimum payment on time.
And no, paying your balance in full each month isn’t good enough. The credit reporting system is not real time, so the actual balance on your cards right now isn’t what’s actually on your credit reports — it’s whatever your balance was on last month’s statement. If your balance was $2,543 on your last statement, that’s what’s on your credit reports right now — along with a 25.4% utilization rate, assuming the same $10,000 credit limit — even if you paid the bill in full and on time.
Avoiding the mistake: There’s actually a pretty decent credit score hack to deal with this one, but you’re going to have to forgo your card’s 21-day grace period. There are two relevant dates associates with your credit card accounts: the due date and the statement closing date. If you pay off your balance (or pay down your balance) by the statement closing date, then your statement balance will be zero dollars, your utilization percentage will also be zero, and your scores will skyrocket.
If you were going to pay off the balance in full anyway, then why wait for the grace period? Try it one month, and see what happens to your scores.
- Debunking Four Common Credit Myths
- What Is a Good Credit Score?
- 10 Money Mistakes Most 20‑Somethings Make
John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. He has written four books on the topic and has been interviewed and quoted thousands of times over the past 10 years. With time spent at Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.