You want to keep your credit rating good so you can get home mortgage loans and better interest rates! Here’s how to avoid two common mistakes that destroy your credit rating, from Chris Scully, financial expert and president of CarePlus Financial.
Before the tips, Scully describes how long it takes to rebuild your credit:
“According to the Fair Credit Reporting Act, the credit bureaus may retain derogatory information on your credit report for up to seven years,” says Scully. “Bankruptcies can stay on your credit report for up to 10 years and things like unpaid tax liens and unsatisfied judgments can stay on indefinitely until they are paid.”
But, this doesn’t mean that you’ll have “bad credit” for 7-10 years! The amount of impact reduces as time passes; Scully has seen people with acceptable credit scores 2-3 years after starting to rebuild their finances. Every situation is different. Read Credit Repair Kit For Dummies for more information on rebuilding your credit after debt, and read to learn how to avoid two common mistakes that destroy your credit rating…
Common Credit Card Mistakes That Destroy Your Credit Rating
1. Closing credit card accounts. One of the key factors in the credit score calculation is the length of time your accounts have been open. If you close an account you lose that history as far as calculating your score. Plus, closed accounts are often mis-reported. There apparently is a difference between “closed at consumer’s request” and “closed by creditor.” If you pay off a credit card down to zero, keep it open and keep it active by charging something on it each month that you would normally pay for in cash. When the bill comes, pay it off in full.
2. Thinking not missing payments equals great credit. Not quite. How much credit do you have? How long have you had it? What are your outstanding balances? If your credit history is relatively short that’s a hit on your score. If you have only one or two credit accounts, your credit score won’t be as high as it could be. To learn more, read 10 Facts About Credit Scores.
However, the real money mistake in this scenario is carrying high balances. This is known as “utilization” of credit. High utilization indicates someone is living beyond their means. That person is a high credit risk. It’s a bit of a double-edged sword: you need to use credit to have a good credit score, but if you use it too much you hurt your own cause. Ideally one would use credit for the following: large ticket items that are difficult, if not impossible, to purchase with cash & as a convenience when purchasing or traveling. When using credit as a convenience you pay your bill off in full when it is due. You do not carry balances.