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Avoid Common Credit Score Mistakes
There are a few things that people do without realizing it that have a bad effect on their credit score. Follow these tips to avoid the common traps that can sink your credit risk rating:
Tip #11: Beware of debts and credit you dont use.
It is easy today to apply for a store credit card that you forget all about in three years - but that account will remain on your credit report and affect your credit score as long as it is open. Having credit lines and credit cards you dont need makes you seem like a worse credit risk because you run the risk of overextending your credit.
Also, having lots of accounts you dont use increases the odds that you will forget about an old account and stop making payments on it - resulting in a lowered credit score. Keep only your used accounts and make sure that all other accounts are closed. Having fewer accounts will make it easier for you to keep track of your debts and will increase the chances of you having a good credit score.
However, realize that when you close an account, the record of the closed account remains on your credit report and can affect your credit score for a while. In fact, closing unused credit accounts may actually cause your credit score to drop in the short term, as you will have higher credit balances spread out over a smaller overall credit account base.
For example, if your unused accounts amounted to 00 and you owe 00 on accounts that you have now (lets say on two credit cards that total 00) you have gone from using one fourth of your credit (00 owed on a possible 00 you could have borrowed) to using one half of your credit (you owe 00 from a possible 00). This will actually cause your credit risk rating to drop. In the long term, though, not having extra temptation to charge and not having credit you dont need can work for you.
Tip #12: Be careful of inquiries on your credit report.
Every time that someone looks at your credit report, the inquiry is noted. If you have lots of inquiries on your report, it may appear that you are shopping for several loans at once - or that you have been rejected by lenders. Both make you appear a poor credit risk and may affect your credit score. This means that you should be careful about who looks at your credit report. If you are shopping for a loan, shop around within a short period of time, since inquiries made within a few days of each other will generally be lumped together and counted as one inquiry.
You can also cut down on the number of inquiries on your account by approaching lenders you have already researched and may be interest in doing business with - by researching first and approaching second you will likely have only a few lenders accessing your credit report at the same time, which can help save your credit score.
Tip #13: Be careful of online loan rate comparisons.
Online loan rate quotes are easy to get - type in some personal information and you can get a quote on your car loan, personal loan, student loan, or mortgage in seconds. This is free and convenient, leading many people to compare several companies at once in order to make sure that they get the best deal possible.
The problem is that since online quotes are a fairly recent phenomenon, credit bureaus count each such quote estimate as an inquiry. This means that if you compare too many companies online by asking for quotes, your credit score will fall due to too many inquiries.
This does not mean that you shouldnt seek online quotes for loans - not at all. In fact, online loan quotes are a great resource that can help you get the very best rates on your next loan. What this information does mean, however, is that you should research companies and narrow down possible lenders to just a few before making inquiries. This will help ensure that the number of inquires on your credit report is small - and your credit rating will stay in good shape.
Tip #14: Dont make the mistake of thinking that you only have one credit report.
Most people speak of having a credit score when in fact most people have at least three or more scores - and these scores can vary widely. There are three major credit bureaus in the country that develop credit reports and calculate credit scores. There are also a number of smaller credit bureau companies.
Plus, some larger lenders calculate their own credit risk scores based on information in your credit report. When repairing your credit score, then, you should not focus on one number - at the very least, you need to contact the three major credit bureaus and work on repairing the three credit scores separately.
Tip #15: Dont make the mistake of closing lots of credit accounts just to improve your score.
This seems like a contradiction, but it really is not. Many people think that to improve their credit score, they just have to pay off some debts and close their accounts. This is not exactly accurate. There are several reasons to think carefully before closing your accounts.
First, if you close an account you need (for example, if you close all your credit card accounts) then you will have to reapply for credit, and all those inquiries from lenders will cause your credit score to actually drop.
Secondly, most credit bureaus give high favorable points to those who have a good long-term credit history. That means that closing the credit card account you have had since college may actually hurt you in the long run. If you have credit accounts that you dont use or if you have too many credit lines, then by all means pay off some and close them. Doing so may help your credit score - but only if you dont close long-term accounts you need. In general, close the most recent accounts first and only when you are sure you will not need that credit in the near future. Closing your accounts is a bad idea if:
1) You will be applying for a loan soon. The closing of your accounts will make your credit score drop in the short term and will not allow you to qualify for good loan rates.
2) Closing your accounts will make your overall debt balance too high. If you owe 000 now and closing some accounts would leave you with only 00 of possible credit, you are close to maxing out your credit - which gives you a bad credit rating.
In the short term, closing accounts will lower your credit score, but in the long run it can be beneficial.
Tip #16: Dont assume that one thing will boost your credit score a specific number of points.
Some debtors are lead to believe that paying off a credit card bill will boost their credit score by 50 points while closing an unused credit account will result in 20 more points. Credit scores are certainly not this clear-cut or simple.
How much any one action will affect your credit score is impossible to gauge. It will depend on several factors, including your current credit score and the credit bureau calculating your credit score.
In general, though, the higher your credit score, the more small factors - such as one unpaid bill - can affect you. However, when repairing your credit score, you should not be equating specific credit repair tasks with numbers. The idea is to do as many things as you can to get your credit score as close to 800 as you are able. Even if you can improve your credit score by 100 points or so, you will qualify for better interest rates.
Tip #17: Dont think that having no loans or debts will improve your credit score.
Some people believe that owing no money, having no credit cards, and in fact avoiding the whole world of credit will help improve their credit score. The opposite is true - lenders want to see that you can handle credit, and the only way they can tell is if you have credit that you handle responsibly. Having no credit at all can actually be worse for your credit score than having a few credit accounts that you pay off scrupulously. If you currently have no credit accounts at all, opening a low balance credit card can actually boost your credit score.
Tip #18: Never do anything illegal to help boost your credit score.
It seems pretty obvious, but plenty of people try to lie about their credit scores or even falsify their loan applications because they are ashamed of a bad score. Not only is this illegal, but it is also completely ineffective. Your credit score is easy to check and not only will you not fool lenders by lying but you may actually find yourself facing legal action as a result of your dishonesty.
Correcting Bad Credit
You might want to consider consolidating two or more credit cards if you have them.
The major differences between for profit and not for profit debt counseling services are in the fees they charge, the range of services they provide in-house, and the experience of their staff. Credit counseling can help you find that solution. We start young without any knowledge and the only experience that we pick up, as we get older is that we can get more credit when our current supply runs out.
Dont leave out any information about your credit history or what you owe now, even if you feel that it is embarrassing.
There are few lenders that do not prefer credit counseling items on your report. Building credit history, and understanding the logistics behind it, is crucial to getting out of debt and staying out of debt. Debt reorganizing is a way to help you get out of debt over a longer period of time and at a payment schedule that you can afford and afford to live with. The one thing that youll want to be certain of is that the debt settlement service is licensed and experienced.
This will establish that you are prompt at paying your bills and that you more than exceed the minimum monthly, required payment.
One of the most famous or infamous amongst this group is Ameridebt that was shut down for defrauding individual Americans who were seeking debt relief of millions of dollars in hidden fees and charges. You can find these through the phone book or on the Internet and they should specify whether they are for profit or not. If you find that youre having trouble making payments on your credit cards, or towards your other bills you should talk to your creditors or hire debt negotiation services to do the talking for you. You can find these through the phone book or on the Internet and they should specify whether they are for profit or not. However, there are few agencies that pretend to be non-profit, but keep a part of consumers' money with them. Your credit counseling service will help you develop a plan that involves negotiating with your creditors and agreeing on a regular monthly plan that is within your budget and far less than what you are being asked to pay right now. |
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