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Top Four Credit History Blunders

Oct 22, 2007
You can't turn around without someone telling you this or that about the importance of your credit score. Unfortunately, they're all correct. You credit score has the power to help you get a small loan for your business, or a mortgage for a house, but only if you've managed your finances in such a way that your credit score is favorable. So you want to do everything in your power to keep your financial record clean. Many different factors go into your credit score, but these are some of the biggest mistakes you won't want to take to the bank.

Don't max out your credit card. Easier said than done, you might say, but it's essential. If you're using the majority of your available limit on any given card, or on more than one card, it tells banks and lenders that you're living off of your credit cards, and unlikely to be able to pay them back. Ideally, you should never carry more than 30% of your available limit on any credit card.

Don't make late payments. Again, easier said than done, but promptness counts big on your credit score. Not only can late payment allow your credit card company to jack up your APR and slap you with penalty fees, but it also puts your financial responsibility in question. Future lenders don't want to take a gamble on someone who has a history of missing payments. Keep on top of your payments, and you will be establishing yourself as a financially responsible person who they will feel confident lending to when it matters.

Don't give up on your credit score. People sometimes think that once they've missed a payment on their credit card, their credit score is already toast, so they may as well just keep missing them, or worse, not pay them back at all. They couldn't be more wrong. When it comes to late payments, the details matter. People who will be evaluating your credit care how frequently your payments were late, and how long you let them go. Missing a payment by two days once is different from missing it by two days every month, and missing your payment by a week is different from not paying it for two months.

And even if you have a blemish like this on your credit history, all hope isn't lost. If you can practice good money-management for an extended period of time after your payment hiccup, lenders will look more favorably on you. They care the most about the last two years, so don't mope around thinking that a missed payment from a decade ago is going to lose you your mortgage.

Don't use a card that doesn't report to the credit bureaus. Many people don't realize it, but not all lenders report to the institutions tallying up your credit score. You might think this would be a good thing--after all, if they aren't reporting, any bad behavior with this card won't be factored into your credit score, right? Wrong. Even though these cards won't report any card practices that would work in your favor, any problems that go to collections will work against you. This is the worst of both worlds. These credit cards can harm your credit score, but they will never improve it, not matter how responsibly you use it. Whenever you sign up for a new credit card, read the fine print and find out whether or not your lender reports to the credit bureaus. If you aren't sure, simply ask one of the lender's employees.
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