Consumers should place a much higher priority on their credit score than they may have in years past. The reality on consumer credit ratings is that they are no longer utilized just for getting credit cards or loans anymore. The fact is that people outside of the financial sector consider your credit score for other reasons including getting a job, activating utility services, and renting a place to live. If your credit is not up to par, you can count on having to pay a lot more money than you can reasonably afford.
Many consumers know what it takes to establish a good credit score. On-time, monthly payments for all of your bills is one factor that influences a good credit score. But it is also important for consumers to realize what does not help a credit score. When making the effort to repair credit scores, one must understand the common mistakes being made and work to avoid them in their financial life.
Here is a brief overview of 5 of the common credit repair mistakes people make that end up doing their credit more harm than good:
1. Ignoring the Need for Repair
The most important thing consumers need to consider is whether they are ignoring bad credit. If you haven’t ordered and reviewed your credit reports any time recently (or ever), it is important to get into the habit of doing this annually. Each year consumers have the ability to receive a free copy of their credit report. This free report does not contain a credit score but it can still allow consumers a look into their credit activity and see where they stand. For consumers who have no idea where their credit scores range, it is important to order scores and reports immediately and review data for accuracy. Just because you may not have the need for a loan or a credit card in the near future does not mean your credit history should continually be ignored.
2. Canceling Existing Accounts
It may seem somewhat logical to shut down credit accounts that you no longer use or which prove to be a bigger temptation than you can handle. However, closing too many accounts can have a serious negative impact on your credit score. The reason closing credit accounts causes damage is because part of your overall credit score factors in the amount of credit you have compared with how much credit is in use. If you close out accounts but still maintain balances on other accounts, you are affecting your current ratios of credit. The best thing you can do to help yourself without hurting your credit is to leave accounts open but pay off existing balances as soon as possible. Over time you can start closing accounts over a period of a year rather than all at once.
3. Paying Off Other Debts with Your Credit
Consumers who are trying to do right with their credit scores will try to eliminate some old debts by paying off balances in full. However, instead of saving up cash to eliminate these balances, consumers will utilize credit cards. This can create a vicious cycle of debt that is difficult to get from underneath. It is a better idea to budget accordingly in order to have the available cash to pay off debt balances rather than add interest charges on other cards. Balance transfer cards and the like may work as a short-term solution to getting rid of debts but without a reasonable action plan to pay off those credit cards, you are just trapping yourself further in debt.
4. Illegal Credit Repair Schemes
Whether you believe the advertisements of credit repair companies promising to improve your credit overnight or if you are open to using alternative means to repair your credit that are not in line with the law, you are doing your financial status a lot of harm. Put simply, there is no one easy solution to relieving yourself of credit problems. It takes time and a lot of effort to repair your credit but it can be done. Illegal practices such as creating a new credit identity to erase credit mistakes or using a tax identification number to appear in good credit standing will only get you in a bunch of legal troubles. Another common tactic people will try is disputing every entry on their credit report. The consumer credit reporting bureaus have the right to dismiss disputes they feel are frivolous. If you fill out the forms to dispute the correct information contained in the report as a way to clear your bad credit standing, you may accomplish nothing in the way of creating a stronger credit profile.
5. Failure to Follow Through and Follow Up
When you are on the quest for better credit, the only way to be sure that things will get accomplished to give you a better credit score is to follow through with your tasks. Never assume that things out of your control are being handled properly. Take the time to follow up with creditors and the credit reporting agencies to ensure your disputes and concerns are being addressed in a timely manner. As you get farther in the process of rectifying past credit mistakes, be sure the data is being supplied to the consumer reporting bureaus monthly. You may spend months doing the work it takes to bring back a better credit score but you will never be sure that your efforts are having the right impact if you are not following up on the activity.