Your credit score is a key player in your financial life. It allows you to access several forms of financing; makes financial products cheaper; and even allows you to get an apartment or a job. As such, it's important to develop good credit habits.

However, even with good habits, improving and maintaining your score can still be a difficult task. Because the road to getting the coveted 800 credit score has many pitfalls. 

In this article, we'll be taking a look at the common mistakes that can hurt your credit score. And to avoid.

Keeping High Balances

When calculating your score, credit scoring models consider several different factors. This includes the amounts you owe. The amounts you owe considers all your outstanding debt, such as mortgages and credit card debt.

With that said, paying off your debts is and should be common knowledge. However, keeping high balances is actually one of the most common mistakes that many consumers make.

Zero Credit Card Balances

While this may sound counter-intuitive, but keeping your credit card balances at zero can actually hurt your score. Because when you keep your card balances at zero, that card's available credit doesn't factor into your credit utilization. The reason being: "you're not using credit".

Credit utilization is the percentage of the available credit you're using at a given time. For example, on a card with a $500 balance and a $1,000 limit, your utilization is 50%. To that end, leaving a small balance on your cards each month can actually help increase your credit score. Because you’ll have a low credit utilization ratio. 

Closing Credit Accounts

For most people who struggle managing their accounts, their go-to course-of-action is to close it down. However, thinking that closing an account will immediately improve your credit is a mistake. Granted, closing an account can be a good idea if it makes financial sense. But, in most cases, it harms your credit.

Canceling a credit card, for example, does two things to your credit. First, it reduces your total available credit and may cause your utilization to increase. For instance, let's say you have two cards, each with a $1,000 credit limit. If one card has a $500 balance and the other, a $100 balance, your utilization is 30%. However, if you pay off the $100 balance and cancel the card, your utilization becomes 50%. To improve and maintain your credit score, you'll need to keep your utilization below 30%; the lower, the better.

Second, it shortens the age of your credit history. The length of your credit history accounts for 15% of your score. And it considers the average age of all your credit accounts. To that end, you'll want to keep your accounts open as long as possible. Especially the more seasoned accounts. Of course, your account's age won't matter if they're not in good standing.

Opening New Credit Accounts

To build credit, you'll need to apply for and use credit. But, opening new credit accounts can actually have negative effects on your score. Yes, it's another contradiction. However, applying for new or additional credit is not necessarily a bad thing.

Whenever you apply for a credit card or loan, your lender will pull your credit report. This results in a hard inquiry appearing on your credit report. Granted, hard inquiries can damage your score, albeit only by a little. But, it's nothing too significant that you'll never want to apply for credit again.

When we say opening new accounts is a mistake, we mean, you'll want to avoid opening them needlessly. In other words, apply for new or additional credit only when you need it. Yes, credit account diversity is a credit-scoring factor. However, it's never a good idea to open accounts simply for diversity's sake.

DIY Credit Repair

While there are companies that offer credit management and repair, consumers can actually do them themselves. However, in most cases, fixing one's own credit score problems can do more harm than good. 

To that end, it's best to consult a professional. Much like how you'd consult a doctor for an illness, and not a mechanic. Of course, educating yourself regarding anything and everything credit can go a long way.

The Bottom Line

Avoiding credit-harming mistakes is as important as building good credit habits. But, by making yourself aware, you can easily spot and avoid these common pitfalls. Nevertheless, you have to understand that improving and maintaining credit takes time and discipline. As such, never expect your credit to suddenly skyrocket after avoiding a common mistake.

Fortunately, there are ways to instantly boost your score. And one of them is by disputing errors in your credit report. Inaccurate, incomplete, and fraudulent information can hurt your score. To that end, you'll want to correct and remove them. Call us at 888-799-7267 to schedule a Free Credit Consultation.


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