Are you trying to repair your credit? Are you considering a major credit application such as a car or truck loan? Don’t make these four credit mistakes and you will get much better results from your efforts to get a better FICO score.
Some credit fundamentals are fairly obvious: always pay on time to raise your credit scores, don’t carry credit card balances close to the maximum, and check your credit report on a regular basis. But after these steps have been taken, are you derailing your efforts with one of these four credit mistakes?
Applying For Too Many Store Cards
Consumers are constantly being tempted to open new store cards, especially at holiday shopping time. Every credit card you apply for at Old Navy, Best Buy, or elsewhere results in a hard inquiry on your credit, which can affect your credit score.
You may already be aware of this aspect of credit. What’s not always on the top of the consumer’s mind? The timing of these credit card applications. Are you thinking of applying for a car loan or a mortgage? It is a very good idea to consider avoiding all credit card applications the year prior to your loan.
Doing so protects you from the hard inquiry but also keeps your potential debt low – if you have two new credit cards with a five thousand dollar limit each, your lender may review that as a potential $10 thousand in debt should you carry the maximum balances. This could hurt your chances at major loan approval.
Closing Old Credit Card Accounts
The credit reporting agency TransUnion reports that some people still believe that closing old credit cards can help your credit score. But the age of your credit accounts plays a role in your credit score, and the older your account is the better.
When you close an old account, you may eliminate the temptation to use that account, but you don’t get a better credit score and any late or missed payments associated with that account will still show up on your credit report.
The TransUnion official site says you should expect any negative credit activity on any account, closed or not, to stay on your record between seven and 10 years.
Not Checking Your Auto-Pay
How is this a credit mistake? In the past, some financial institutions have changed their billing due dates in spite of whatever automatic payments you may have set up to transfer funds from your bank account to your creditors.
It’s easy to set and forget an automatic deduction from your bank account, then ignore mail or e-mail from those companies. That makes it very easy to miss situations where your credit card company has changed its’ billing policies. That can turn an otherwise useful service into a series of credit mistakes that will keep happening until you change your auto-pay dates.
If you have an auto-pay arrangement that is suddenly not paying on time, you not only risk damaging your credit but also racking up late fees and other charges.
An NBC.com news report claims that 35 percent of Americans are enrolled in auto-pay services. But the catch here is that these consumers aren’t aware that they are being billed.
There are automatic charges are often made on the credit cards required when you sign up for a “one month free trial” of a service or product. You don’t get billed…at first. But after the trial period ends (and it’s easy to forget when those free trials end) those billings may start up right away. Have you signed up for a free trial of an online entertainment service such as BritBox, Shudder TV, or Amazon Prime?
Who doesn’t lose interest in one or more of those services after a while? If you forget to cancel your subscription before the deadline (usually within the free trial period) you will be charged for successive months until you cancel the subscription.
This naturally depends on the company, the terms of service, and other variables. But beware, you may find yourself paying more than you bargained for on such subscriptions if you fail to cancel them.
Why is this a credit mistake? Those free one-month trial offers are everywhere, they add up. Where your credit is concerned, the more debt you have at the end of the month compared to your income, the higher your debt-to-income ratio is. And that’s a calculation your lender will make when processing a major line of credit. A debt ratio that is too high can result in a higher interest rate, and/or a bigger down payment requirement.
Joe Wallace specializes in personal finance, military affairs, and consumer protection topics. Since 1995, his work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and collects unusual vinyl records, which gives him an excuse to write the vinyl blog Turntabling.net.