As the New Year begins, we start to think of new resolutions for ourselves. Let improving your credit be one of them! Here are five common mistakes you can avoid to begin your year with better credit:
#1 Paying Bills 30 Days or more late
One of the most common ways to lower your credit score comes from being late on paying your bills. Not only is it the most common mistake, but also it is the easiest to fix! Yes, at times we get in a sticky situation where our budget becomes tight or even completely forget to pay, however both come from poor planning and organizing. To be better, mark on your calendar a specific day to pay a bill and how much money is owed. You will be able to visualize deadlines and an amount so paying late will never be an excuse again!
#2 Piling Up Collection Letters
Open. The. Letters. It is important to know what is owed and who to contact when needing to pay the bill. Debt can be stressful, agreed. What is even more stressful is collection letters piling up on the kitchen counter, in the trashcan, or wherever you decide to hide them. Again, open up the letter, make note of what it says and begin a plan on how to start paying your bills.
#3 Maxing Out
If maxing out your credit card is a frequent problem, this is a sign of a spending problem, which is something to work on first. After, do not forget that with higher balances lead to bigger payments. Make a mental note of this if you are on a tight budget. Also, your score will decrease when you use more than 30% of your available credit.
#4 Opening a New Account Before Closing on Your Mortgage
Here is a secret tip for home loan borrowers. Before closing a loan, many lenders run a new credit report. So when borrowers buy new “necessities” for their home, there is a tendency to open new credit accounts or continue to load up their old ones before closing the loan. When lenders run that new report, the borrowers have new debt that could throw off their debt-to-income ratio. If that ratio becomes imbalanced, you become ineligible for the mortgage. Note to self: always close the loan and wait to spend.
#5 Closing Accounts
Leaving an account open after you pay off a card is the key to maintaining your good credit score. Continue to reduce your debt load, but closing that account could mess with your credit because it lowers the total credit available. And once there is less total credit available, your percentage of credit in use increases thus dropping your score.
Don’t let these 5 mistakes be regrets for this New Year. The results will come gradually as long as you kick these habits. Start TODAY and take steps forward in bettering your credit score!