Fred Harteis News Articles - EVERYONE MAKES MISTAKES, but those that hurt your credit score should be avoided at all cost.
All it takes is one little drop in your credit rating to spark a surge of lender notifications about higher interest rates, lower credit limits and denied applications. Fair Isaac's FICO score, which most lenders use, rates consumers' creditworthiness on a scale of 300 to 850 -- 850 being a perfect score. To avoid falling from grace, make sure not to make any one of these five mistakes.
1. Missing a Payment
Payment history accounts for a whopping 35% of your credit score. The result: "One late payment drops your score like a rock," says Gerri Detweiler, a credit advisor for Credit.com. For a consumer with otherwise good credit, the damage could be more than 100 points. Someone with a credit score of 707 who missed payments one month could see their score drop as low as 582, according to FICO's Score Simulator. Lenders typically only report the delinquency when your account is 30 days overdue, she says, but don't relax just yet. These days, some are reporting the missed payment after just a day or two. To help you get the check there on time, set up automatic bill pay through your bank account to avoid being late and make sure you allow ample time for everything to clear.
2. Maxing Out Your Cards
Spending sprees are as damaging for your credit score as they are for your wallet. The ratio of debt to available credit accounts for one-third of your score. Ideally, you want to maintain balances of around 10% of your available credit (so, $1,000 on a $10,000 credit line), and never owe more than 30%, says Curtis Arnold, founder of CardRatings.com. "Anything over that is going to adversely affect your score," he says. Maxing out your accounts could drag a score of 707 down to 637, according to the FICO's Score Simulator.
3. Credit Lust
It can be tough to resist the lure of more credit, especially with balance-transfer offers flooding your mailbox and sales clerks touting the 15% discount for opening a store credit card. But opening new accounts can have a detrimental affect on your score. Open just one, and that score of 707 could drop to 697 temporarily, according to the FICO Score Simulator. Open two or more in a short period of time and the effect is exponential, cautions Fair Isaac's Watts. If that's not warning enough, too many of one kind of account creates what lenders deem an unhealthy mix of credit, he says. Someone with plenty of credit cards but no mortgage or other secured or installment loans (say, auto or student loans) will have a lower score than a consumer with a mix that includes each type. In fact, 10% of your credit score is based on this factor alone.
4. Closing Old Accounts
Whatever you do, don't close out old credit-card accounts, warns Scott Bilker, founder of Debtsmart.com. "It's one of the worst things you can do," he says. Not only does it cut short your credit history, but it eliminates a portion of your available credit, bringing you right back to mistake No. 2 -- high balances compared with your credit limits.
5. Not Paying Attention
Just because you may not be making any of the mistakes above, doesn't mean you can sit back and let everything go. Some of the things that are most damaging to your credit score aren't obvious unless you're vigilant about reviewing your credit report. One in four reports contains a serious error, according to the U.S. Public Interest Research Groups. On the more sinister side, there might also be damage from identity theft or an old library fine unknowingly sent to collections. Get your free copy at AnnualCreditReport.com.
Although you'll have to pay to obtain your credit score, it's worth the $15.95 at MyFICO.com to check it on an annual basis -- or more frequently if you're preparing for a major purchase, like a home, says Credit.com's Detweiler. This year, FICO has adjusted its formula to more widely separate the good lending risks from the bad. As lenders begin using it early this summer, make sure to request your score to assess the changes. "Someone who has always thought, 'I have a good score, I don't have to worry about it,' should check again," says Detweiler.
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About Fred Harteis: Fred Harteis leads Harteis International. Fred Harteis has a background in agriculture and has created many successful business ventures.