by Susan Paige
My low credit score haunted me for a long time. I kept obsessing over the possibility that I wouldn’t be able to buy a house or car when I most needed them. What if I found the love of my life and wanted to move in with him, only for me to ruin our chances of buying the perfect home?
But your credit score is something you can work on. Perhaps more pertinently, you can stop damaging your credit or FICO score if you know what to look out for.
Here are 7 mistakes to avoid if you’re looking for the best way to build credit.
1. Maxing out your credit
When you get a credit card, the assumption is that you can simply spend the entire value. Many people do not realize you should avoid this. Part of your credit score is your debt utilization ratio. It is not a problem if you’re using less than 50% of your credit. However, once you get close to your limit your credit score begins to suffer.
2. Closing credit cards
Once you have paid off a credit card, the instinct is to close it. But for the same reason as above, you should keep it open. This means that whatever debt you have is at a much lower ratio. Closing a credit card instantly ruins that.
3. Entering a debt spiral early in life
It may be too late for this piece of advice, but if you are in college you should avoid getting a credit card. As a student, you are far more likely to spend on your credit card on impulse buys, especially if you do not have too many responsibilities. Then, when you start working, you are not in a position to get car and home loans you so badly need.
4. Missing payments (even if you pay them later)
When a debit order bounces, your credit score may immediately suffer. The same is true with a bounced check. Even if you pay them the very next day, the effect of the bouncing of your initial payment will not be scratched from your credit score.
5. Assuming individuals won’t report you
Many people choose to pay rent late rather than other expenses because they are dealing with an individual landlord, rather than a company. However, many landlords will be quick to report you, no matter how good their relationship with you is. They are running a business after all, and might not empathise in the way you would.
6. Applying for loans you might not get
Getting a loan does not have to be a bad thing. The right loan can help you build credit rather than lose it, and can open possibilities. However, try to avoid applying for loans you might not get. Firstly, if you are only borderline eligible, you will probably have a hard time paying it back. Secondly, if your loan application gets rejected, your credit score will drop. The more loans that are rejected, the more damage your credit score will take.
7. Not checking your credit report
Occasionally, there will be errors on your credit report. This happens more than you think, and when it does it can seriously impact your credit score. Don’t just gloss over your credit report. Check it carefully to make sure everything is correct and report mistakes as soon as possible.