Getting Out of Debt Fast

Credit Score Mistakes

All it takes is one small drop in your credit rating to unleash lender notifications about higher interest rates, lower credit limits and denied applications. Everyone can make a mistake, but those that hurt your credit score should be avoided at all costs.

Credit Score Mistakes #1: Missing a Payment
Your payment history makes up 35% of your overall credit score. This means that missing even one payment can drastically lower your credit score. One way to avoid missing a payment is to set up automatic bill pay through your bank account. Of course having automatic bill pay doesn't guarantee that something won't go wrong, so you will want to double check and make sure the payment has been sent and processed.

Credit Score Mistakes #2: Maxing Out Your Credit Cards
The ratio of debt to your available credit accounts for one third of your credit score. Never charge more than fifty percent of your available credit (for example, if your available credit is $1,000 don't charge more than $500.) You can actually add points to your credit score if you keep your charges down around the thirty percent level of your available credit.

Credit Score Mistakes #3: Too Many Credit Cards
The offer to transfer existing balances to a new credit card with zero interest for sixty days or the offer to receive a twenty percent discount for opening a store credit card can be hard to resist. But opening new accounts can have a negative effect on your credit score. There are several reasons for this negative effect. One reason is that a credit check will be performed which can temporarily lower your score. Another reason is that lender will look at your credit mix, so an individual with a lot of credit cards but no mortgage or secured loan will score lower than an individual who has few credit cards and a secured loan. Ten percent of your credit score is based on your credit mix.

Credit Score Mistakes #4: Closing Old Accounts
Closing old credit card accounts is probably one of the worst things you can do. This will eliminate part of your credit history and also show a decrease the total amount of credit that is available to you. Making a small purchase with old credit cards every six months will keep the account active and improves your credit utilization rate and lengthens your credit history.

Credit Score Mistakes #5: Not Paying Attention
Even if you aren't making any of the mistakes I've mentioned, this doesn't mean that you can just sit back and relax. It has been reported that one in four credit reports contains a serious error. It is your responsibility to check your credit report for errors. You can obtain a free copy of your credit report from AnnualCreditReport.com once per calendar year. If you do find an error on your report, contact the reporting agency immediately and find out the process to get the error corrected.