Avoid making these costly mistakes

1. Closing Credit Cards

Your credit scores are built upon the strength of your open and active accounts. As long as your accounts are “open and active” and “paid as agreed” they will add value to your scores. When your account is no longer open and/or active you will lose the value from that account, therefore it’s best to keep your accounts open for as long as possible. Closing an account will cause your scores to fall quickly. In fact, I’ve seen my own grandmothers scores drop from 800+ to a low 600’s because she closed all of her credit cards. That is a credit mistake to avoid.

2. High Utilization on Low Limit Cards

Credit card debt has a huge impact on credit scores but many people don’t realize how big of an impact an individual credit card balance has. The credit scoring system places emphasis on individual account balances vs overall account balances. As a result, if just one of your credit card balances exceeds 50% of the limit, your scores can drop 7-20 points. Our typical offenders are the low limit cards because it doesn’t take much to exceed the 50% threshold.

Do pay your cards off at the end of the month? You’re still not safe. Typically lenders report randomly perhaps in the middle of the month. Your balance on the 15th may be the balance that sticks on your credit  for the next 30 days. To avoid this credit mistake, keep your credit card balances low.

3. Opening New Accounts

Did you know that opening up a new credit card is a credit mistake? Opening a new account of any type will typically bring your scores down. The credit scoring system sees a lot of risk in new accounts and therefore your scores can drop once the account shows up on your credit report. The average person opens up an account every 2-3 years, any more activity is a sign of high risk behavior.

4. Collections

Collection account can seemingly appear on your credit report at any type and they are terrible for your credit scores. The most common type of collection that I see is medical related. If you have visited a doctors office or the hospital at any time over the past few years, there is a good chance that a medical collection is on your credit report now. I recommend checking your credit report periodically to make sure there are no collections reporting.

5. Past Due Payment

Times get tough and money gets tight. You may not be 30 days late on your payment yet but the damage can still felt on your credit. If your creditor reports that your payment is past due, your scores will drop like a rock. The good news is that this credit mistake can be corrected by getting current on your payments.

6. Debt Consolidation Programs

Many people look to debt relief programs as a better alternative to a Bankruptcy but many debt relief programs are just as harmful as a BK itself. Many of these debt relief programs advise you to stop making your payments to your creditors. During this time your accounts go from “paid as agreed” to 30, 60, 90 days late and finally to a charge off. If you stay in the program long enough, the debt relief company will use your money to settle the charged off accounts. Consequently your credit will be trashed with collections and charge offs.