Having a good credit score is important to receive the best interest rates on big or small purchases, that’s why owning a credit card comes with great responsibility. For this reason, we’ve listed five common oversights that impact your credit score.
Contents
- Having No Credit
- Applying For Too Much Credit
- Late and Missed Payments
- Not Paying Balances in Full
- High Credit Utilization
Having No Credit
While having no credit is the safest way to avoid debt, it’s also an anchor when making large-scale purchases. When you have no credit, you can’t build good credit, which causes lenders to have trouble trusting you when you want to purchase a car or house. As a result, you’ll have to make purchases in full, which is a timely and expensive process. And since we live in an unpredictable economy, housing prices and loan rates vary throughout the years, thus, making it extremely difficult to make large purchases in full.
While avoiding credit to avoid debt sounds like you’re living on the safe side, you’re also putting yourself in a situation where you’ll run into trouble. Having credit is good! But you have to be responsible when using your credit to maintain a good credit score.
Applying For Too Much Credit
It’s easy to apply for new credit loans, especially if there’s a tempting sign-up offer. However, frequently signing up for new credit cards and receiving rejections along the way will result in losing points from your credit score. That’s why it’s crucial to make sure that you will qualify for a credit loan before applying to one or multiple loans. Suppose you apply for a loan, wait to see if you’re approved before applying for another one. One rejection can cause you to lose up to five points on your credit score. So if you receive multiple rejections around the same time, your credit score can drop drastically. On the bright side, credit rejections will remain on your credit report for up to six months.
Late and Missed Payments
Forgetting about an upcoming payment is very common, especially when living busy lives. However, it’s crucial to make payments on time, even if you must pay the minimum amount. Paying the minimum will still affect your credit score to an extent but can be quickly resolved compared to missing or making late payments, which will stay on your credit history for lenders to see.
The best way to stay on top of your bills is to set up automatic payments with your chequing accounts to make payments on time. Along with setting up automatic payments, schedule email and calendar reminders when payments are due. You can also download the Credit 360 app, designed to set reminders for when bills are due, so you never have to forget a payment again!
However, if you still forget to make a payment, immediately contact the associated company to arrange a late payment. Most credit companies report late payments after 30 days, so your credit score is less likely to be affected if you contact the company within 30 days after the missed payment date.
Not Paying Balances in Full
While missing and late payments drastically impact your credit history, not paying your credit card balances in full can also drag your credit score. When you’re only making the minimum payment, you allow the remaining balance is transferred to the next month. Along with the carried-over balances, your interest fees and the minimum amount will increase with each billing cycle. Eventually, you will find yourself paying more money to the institution’s fees rather than paying and maintaining the credit you’re using.
High Credit Utilization
Although credit cards come with a credit limit, don’t exhausting the funds to the maximum limit! Credit utilization determines 30% of your credit score! Meaning you need to pay attention to how much of your available credit you’re using to maintain a good credit score. Credit utilization measures how much credit you used in ratio to how much credit you own overall.
Credit bureaus recommend keeping credit utilization under 30% across ALL financial products to ensure credit score is in good standing. Having a high credit utilization indicates that you are dependent on credit which lenders may see as a risk resulting in higher interest rates when asking for new loans.
Written By: Indojaa Sathiyaseelan
