5 Mistakes that RUIN your Credit Score

Building your credit is easily one of THE most important things you can do to improve your financial future. However, these 5 common mistakes will RUIN your credit score – this is how to avoid it. Enjoy! Add me on Instagram: GPStephan

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First: Missing a payment or by paying it off late.
This is probably the most detrimental mistake you could make, because your payment-history makes up 35% of your overall credit score. And what’s even worse, is that your payment history is stays on your credit report for up to seven years.

So when it comes to preventing this from happening, here are two things I always do:
First, I ALWAYS make sure to have auto-pay enabled to make the minimum payment. This way, NO MATTER WHAT, I’ll always at LEAST pay off the minimum amount I owe, on time.

Second, I use a combination of Mint.com and CreditKarma.com to keep track of all my credit cards and credit card balances every few weeks. If I see something with a balance, I’ll always just go in and pay it off immediately so I don’t forget about doing it later. This usually takes a few minutes every other week to manage, it’s fairly simple.

Second: Maxing out your credit card
This is because 30% of your credit score is calculated by what’s called your credit utilization – this is the amount of credit you have available to you, versus how much of it you actually use. So when it comes to avoiding this mistake, thankfully it’s fairly easy to do in a few steps:

First, try to keep your credit utilization under 30%. This means for every $1000 of credit that you’re given, you keep a balance under $300 at all times.
The second thing you can do, IF you need to make larger one-time purchases on your credit card, is pay it off as soon as you exceed 30%.

Third strategy I’ve used is to have MULTIPLE lines of credit so that it lowers the overall credit utilization.

But…the GOOD news with this is that even if you DO max out your credit card…your drop in credit score is only temporary until you pay it off!

Third: Opening up too much credit, too quickly
Each time you apply for new credit, it’s called a “hard inquiry” – which just means that a third party has run your credit, indicating you’ve applied for a loan. Each time this happens, it’ll lower your credit score about 3-5 points…and this affects your credit score for the next 6 months.

On one hand, the more credit cards you have, generally the more diverse your credit history is, and because of that, the HIGHER your score will be – LONG TERM. In the short term, however, the more cards you apply for at once, the higher risk you become to lenders, and because of that, the LOWER the score you’ll have.

So when it comes to this, here is my advice:
If you’re planning to buy a house or car in the next 6-8 months, or you plan to finance any large upcoming purchases, DO NOT open up new lines of credit. It’s just too risky and if you lower your score at a time where you need it the most, it could be detrimental to your loan!

Fourth: Closing an old credit card.
This is because the AVERAGE length of your credit history makes up 15% of your overall credit score, so when you cancel an old credit line, you inadvertently also lower the AVERAGE age of your credit. This is why It’s important to ALWAYS keep your oldest credit accounts active, even if you never use them – just because this weighs down your average account age to show it’s been open longer.

Fifth: Not having any credit at all!
If you don’t have a credit score, you’re an “unknown” to lenders because your entire credit score is NOTHING…and because of that, no lender will ever loan you money for a house, or a car, or anything else you might want to finance. If this is you, learn from my mistake and get SOME type of credit card.

For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness@gmail.com

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