That’s why it’s important to keep tabs on your credit score and make sure it stays healthy.
Although you can’t always predict what hurts or affects your credit score, here are six warning signs your credit may be in trouble – and what you can do to get it back on track.
Credit Score Mistakes to Avoid
1. You Have Too Little Credit
Many young consumers and those new to credit have little or no credit history or not enough credit accounts to generate a credit score. Building credit from scratch is a catch-22: using credit responsibly is what builds your credit score, but it’s hard to get access to a credit card or loan when you have no credit history to begin with.
What to do: If you find it difficult to get approved for a credit card, get a secured credit card, which typically has guaranteed approval and serves as credit “training wheels.” Then once you have a card, start using it and always pay the bill on time! In order to establish good credit, you must be able to demonstrate to a lender that you can use your credit regularly and responsibly.
For more tips starting out, here are some ways to build good credit history in college.
2. You Have Too Much Credit
If you’re losing track of how many credit cards you have, you might owe money and not even know to whom or how much. You may have fallen into the many credit card traps of low introductory interest rates or rewards bonuses. The reality is that much credit could lead to out-of-control credit use and debt.
What to do: If your wallet is overflowing with plastic, start by assessing your situation. Get your credit report from AnnualCreditReport.com and go through each credit card account. Find out what your debts are and implement a strategy to wipe them out one by one. If you’re considering closing some unused credit cards, make sure you follow the right precautions.
3. You Don’t Know What Your Credit Limit Is
If you don’t know how much credit is available to you, chances are you might have stopped using your card (which won’t build your credit history), or you may risk going over your credit limit (which will harm your credit score).
What to do: Find out what your total available credit is on each credit card to better control your credit utilization rate. Your credit utilization rate, which gives lenders an idea of how responsibly you use your credit, should be below 30% to most benefit your credit score.
4. You’ve Been Late on Several Payments
Being late on just one payment can harm your credit health because payment history is a significant factor in calculating your credit score.
What to do: Set up automated payments. Installment loans like student loans, home mortgages, and car loans have fixed payments month-to-month, so it’s easy to set up an automatic payment plan to ensure that you won’t miss another one again. Since credit card payments can fluctuate in amount month-to-month, create reminders or alerts for when they are due and always pay more than the minimum monthly amount. Budgeting tools like Mint.com and You Need a Budget allow you to set up these types of alerts, in addition to tracking your spending.
5. Your Only Line of Credit is a Plastic One
If you’re only managing credit cards, how can a mortgage or loan lender judge your credit management abilities? A lender wants to see that you are able to juggle a good mix of credit.
What to do: Obviously, you shouldn’t apply for a mortgage or car loan just to boost your credit score. But if you find yourself in a position of purchasing a house or a car, know that your credit will probably benefit from the variety of new credit you’ll be adding to your report – as long as you can afford what you’re buying.
6. You Don’t Know What’s on Your Credit Report
A TransUnion study reports that 29% of adults haven’t checked their credit report in over a year, and 11% have never reviewed their credit report. On top of that, up to 4 out of 5 consumer credit reports contain errors or inaccuracies, which can cost your credit score as much as 100 points without you ever knowing.
What to do: Get your credit report free from each of the three credit bureaus, TransUnion, Experian, and Equifax, once a year. Additionally, track your credit score everyday on Credit Karma. If you see any odd changes in your score, you may want to look into your credit report to pinpoint the issue.
If you see any of these red flags in your credit life, take action. It’s never too late to take steps toward building healthy credit, which will benefit your financial life for years to come.
This is an article from Credit Karma, a free credit management service that provides free credit scores, financial education, and personalized savings recommendations. The company believes that free access to one’s credit score and report is a fundamental consumer right and they help more than 2.4 million consumers realize the everyday cost savings of having a good credit score.
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