6 common credit mistakes to avoid

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These 6 credit mistakes can make it harder to get the best loan rates. Find out how to improve your credit and check your credit score for free. (iStock)

There are many benefits to having good credit. It is an essential factor to benefit from the best rates for a mortgage, a personal loan or a private student loan. A higher credit score can also mean lower monthly premiums for credit insurance. Plus, it can be easier to get good loan rates if you’re trying to refinance debt or meet other life goals.

Avoiding common credit mistakes can help protect your credit score. If you are unsure of your place on the credit score spectrum, you should start using a credit monitoring service to track changes in your credit score. Credible can help you set up a free service today.

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    6 common credit mistakes

    Here are six common credit mistakes to avoid:

    1. Missing payments
    2. Don’t check your credit
    3. Frequent credit inquiries
    4. High credit utilization rate
    5. Closing credit cards
    6. Distributions from the early retirement scheme

    1. Missing payments

    Payment history is the most important factor when it comes to your credit and accounts for 35% of a FICO score, according to FICO. Missed payments can quickly lead to a risky credit score and can stay on your credit report for up to seven years.

    Making the minimum monthly payment for loans and credit cards keeps those accounts in good standing and avoids late fees.

    2. Don’t check your credit

    It is important to regularly check your credit report to check for identity theft and fraudulent accounts opened in your name. You can also spot credit report errors, such as incorrect balances and payments.

    Potential fraud and reporting errors can negatively impact your credit score until you file a dispute.

    With a credit monitoring service, you can receive instant alerts about late payments, fraudulent activity, credit score changes and more. Check out some of Credible’s partners here.

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    3. Frequent credit inquiries

    Applying for too many credit cards and loans in a short period of time is another common credit mistake. Credit applications require serious investigation which temporarily penalizes your credit score and can reduce your chances of getting approved for new accounts.

    Having too many new accounts can also hurt your credit, as you may no longer qualify for the best loan rates. A longer credit history is more likely to result in a higher score.

    4. High credit utilization rate

    A high credit usage rate on revolving accounts, such as a credit card, can negatively impact your credit. Having a credit card balance can also hurt it, even if you make the minimum monthly payment and keep the account in good standing.

    Lenders may perceive a borrower with a high credit card balance or large loan balances as being more likely to default.

    5. Closing of credit cards

    Canceling credit cards that are several years old can be an easy credit mistake to overlook. Having fewer accounts limits the risk of fraud and default, but reduces your total available credit and the length of your credit history.

    6. Distributions from the early retirement scheme

    Some people can use retirement funds to quickly pay off high interest debt. This decision can lead to an increase in your credit score and avoid short-term financial problems. But early retirement distributions are subject to penalties and taxes and can cause future stress.

    To see where you stand with your credit score, turn to a credit monitoring service. Credible partners can help you find your credit score, history, alert you to potential fraud, and more.

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    How to improve my credit

    If you are looking for ways to improve your credit score, consider these options that could help you reach your goal:

    1. Refinance Debt
    2. Pay the entire balance on your credit card
    3. Monitor your credit
    4. Dispute Credit Report Errors

    1. Refinance the debt

    Refinancing your debt with a personal loan at a lower interest rate can help you save on interest.

    You can also reduce the credit usage rate on your existing credit accounts. Each monthly personal loan payment can establish a positive payment history.

    Finding a co-signer is another option that can help you get better loan terms. According to Experian, co-signing a loan can also help the primary borrower and co-signer build credit histories.

    2. Pay your entire credit card balance

    Paying your credit card balance in full each month keeps your credit usage rate low. You also avoid interest charges on the remaining balance.

    Make sure you make the minimum monthly payment on installment loans like auto loans and personal loans. Every on-time payment establishes a positive payment history and lowers your debt-to-income ratio.

    3. Monitor your credit

    Credit monitoring services provide credit score updates and real-time tracking of your credit report for potential errors and fraud. These services use gentle inquiries when checking your credit and don’t hurt your score.

    A free service can track your credit report from up to two credit reporting agencies. Paying for credit monitoring can provide access to your three bureaus credit report and identity theft monitoring. You can also request a security freeze as an additional measure to prevent credit fraud.

    4. Credit report errors in case of dispute

    Disputing credit report errors is free and can help you improve your credit score. In doing so, you will need to file a separate dispute with each credit bureau. Here are some of the errors you can find:

    • Missed payments
    • Personal informations
    • Public documents

    At the end of the line

    Maintaining a good credit history helps ensure that your credit history is accurate and that you are getting the best possible credit score. Avoiding credit errors like missed payments or frequent requests will also help you maintain a high score. And having good credit allows you to benefit from lower interest rates and better loan terms.

    To make sure you stay up to date with your credit status, sign up for a credit monitoring service. Credible can help you get started.

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