The Ultimate List of Credit Score Mistakes | Credit.com
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August 24, 2016 by Credit.com
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A Credit Score Road Map
Working on your credit can feel like a minefield. One wrong move, one mistake and your score can drop dozens of points instantly.
And while some credit mistakes are easier to fix quickly, others could impact your score for years. You may be able to cut your credit card balances and see a credit score boost in 30 days, for example, but if you make a late payment or let a bill go to collections, it can be hard to convince a creditor to remove them from your credit report.
Consider this list your map — if you know how to manage your credit, you’ll be able to avoid the landmines that could be waiting for you.
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Geber86
1. Missing a Loan Payment
Given payment history is generally considered the most important factor among credit scores, missing a single loan payment is one of the fastest ways to tank your credit. In fact, a single missed payment can cause a good credit score to fall by 90 to 110 points, according to a study from FICO.
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Sami Sert
2. Carrying Too Much Credit Card Debt
Whether you’re charging too many lunch outings or need to break your shopping habit, racking up a lot of credit card debt is not good for your credit.
“High utilization is the second most important factor in credit scores,” Rod Griffin, Experian’s director of public education, said. You want to aim to keep your collective credit card balances under 30% — ideally 10% — of your total credit limit for best scoring results.
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3. Filling Your Wallet With Too Many Credit Cards
Griffin points out that this is relative based on individual credit histories and spending habits. But if you have a plethora of plastic in your wallet and each one is maxed out, you’ll be doing a lot of damage to your credit.
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James Brey
4. Closing Credit Cards Too Soon
Tempted to close a card gathering dust in the dresser? Think twice: Closing a credit card with no balance while carrying others could hurt your credit utilization, as your total available credit limit(s) will decrease. And that’s not all it will do to your credit. Your average age of credit helps determine your score, so closing the card means you’ll lose any positive history associated with it.
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5. Not Checking Your Credit Reports …
“You can’t know what is in your credit report unless you look at it, and you won’t know what you need to work on until you know what is in it,” Griffin said. “Getting your credit report can help you identify potential identity theft, recognize anything that might be incorrect, and enable you to take action to protect yourself and have information updated. Getting your credit report lets you take control of the information and empowers you to be a more successful consumer.”
You can get your free credit reports from the three major credit bureaus — Equifax, Experian and TransUnion — by visiting AnnualCreditReport.com.
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BernardaSv
6. … Or Only Checking One of Them
Not all lenders report to each major credit bureaus, so it’s a good idea to pull all three reports, particularly if you plan on shopping for a new loan. There may be an error on one that isn’t appearing on the others.
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kupicoo
7. Not Notifying Creditors If You Change Your Name
“Notifying your creditors of a name change will help to ensure your credit report accurately reflects your identity,” Griffin said. “In most cases, a name change update occurs automatically because you notify your existing lenders of the change or you open a new account using your new identity. Your new name will be added to your existing credit history so you will not lose access to credit when you need it.”
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Svemir
8. Applying for Too Much Credit in a Short Period of Time
Each time you apply for a new line of credit, you’ll prompt a hard inquiry on your credit. (Note: These are different from soft inquiries, like for promotional inquiries or checking your own credit scores, which don’t have an impact on your scores.) Yes, it’s a good idea to shop around when applying for new credit, like for a car loan or mortgage, but you don’t want to go overboard. Doing so can cause your score to take a dive.
“Applying for a lot of credit in a short time is a sign of risk,” Griffin said. “Each time you apply for credit, an inquiry is added to your credit history. Those inquiries represent potential new debt that doesn’t yet show as an account on your credit report.”
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9. Taking Too Long to Comparison Shop for a Loan
Most major credit scoring models will actually group applications for similar loan types (think mortgage vs. auto loan vs. student loan) and count them as a single inquiry. But this rule only applies to applications filled out without a certain timeframe (typically 14-to-45 days, depending on the credit scoring model.) So, if you dilly-dally in your search, you risk incurring multiple inquiries anyway.
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tomasworks
10. Not Having a Diverse Credit Profile
According to Griffin, having a variety of account types “helps show that you can manage credit well, regardless of the type.” This can include a mixture of revolving accounts, like credit cards, and installment accounts, like a mortgage or student loans.
It’s important to note that you should not go apply for different kinds of credit in hopes that it will help your credit, as it will likely do more harm than good. Instead, Griffin advises you “apply for credit as you need it and with a plan to repay it” and “the mix of credit types will take care of itself.”
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11. Not Disputing Mistakes on Your Credit Reports
“You should play an active role in managing your credit history,” Griffin said. “By being part of the process you help ensure the information is accurate and that the credit report is a financial tool that works for you.”
After you get your free reports, go over each item carefully and note any problems you find. From there, you’ll want to file disputes to get these mistakes taken care of. You can read this guide for more on how to dispute any errors on your credit report.
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12. Trying to Get a Perfect Credit Score
Trying to score that elusive 850 (the apex of most credit scoring models) is a noble goal — but it’s also a bit unnecessary. You don’t need the highest score possible to get the best rates on a loan. (Most creditors consider anything over 750 to be excellent credit.) And there are so many credit scores out there in use, a lender may not see perfection anyway. Moreover, if you don’t know exactly what you’re doing, you’re as likely to hurt your credit score as to help it.
Instead of fixating on a single perfect score, focus on establishing good habit, like paying all your bills on time, keeping debt lows and adding new credit organically over time. (You can monitor your progress toward good credit by viewing two of your credit scores for free each month on Credit.com.)
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Jacob Ammentorp Lund
13. Turning a Blind Eye to a Loan You Co-Signed for
When you co-sign a loan, you’re doing someone a serious favor. But if your friend or relative falls behind on their payments, you’ll be the one stuck holding the bag — meaning your credit will be on the line. So, it’s a good idea to carefully consider co-signing before you go ahead and sign on that dotted line. And then it’s extremely important to monitor whether the friend or family member you’re helping out is making their payments and otherwise using the credit line responsibly.
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sanjeri
14. Defaulting on Student Loans
If you default on federal student loans, you’ll likely not only have to deal with debt collectors but also potential wage garnishment, loss of tax refunds and a major hit to your credit scores, making it difficult to do everything from renting an apartment and buying a car to getting a credit card or buying a home.
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15. Tuning Out Collectors’ Calls
You may think hiding from debt collectors will convince them to leave you alone. But chances are they won’t, and your credit will suffer. A debt collection can appear on your credit report regardless of whether you respond, and the interest won’t stop mounting just because you’ve gone AWOL — depending on the creditor and state law, the collector may be able to tack interest and collection costs onto your debt. Worse still, you could wind up being sued by the bill collector, who could enter a judgment against you. That’s bad news for your bank account and for your wages, depending on state law.
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16. Missing a Medical Debt
Medical debt doesn’t just go away. Hospitals and medical centers have their own debt collectors. And just because they stop calling or hand off the bill to a collector, doesn’t mean you’re off the hook. A better course of action would be to call the hospital and try to negotiate the debt before it’s sent to a collector. Many medical facilities and doctors have sliding payment scales.
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17. Ignoring a Parking Ticket
Depending on where you live, even a small unpaid parking ticket can turn into a major headache. Some municipalities send the information on money owed to collection agencies — and those agencies can report that debt to the credit bureaus, which will damage your credit scores.
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mangostock
18. Not Returning a Video Rental
OK, so even though the hay days of Blockbuster have come to an end, this is still a credit score mistake haunting some Americans. If you’re late returning a video rental or never returned it at all and then forgot about the bill, video rental companies have been known in the past for turning that debt over to collections, even for debts less than $10.
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vgajic
19. Keeping a Library Book
You may have forgotten you borrowed that dusty old Dostoevsky, but your librarian likely remembers the small crime — and if that bill gets sent to collection, your credit score will suffer the punishment.
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20. Foregoing Your Phone Bill
A single late payment on your phone service likely won’t be reported to the credit bureaus, but you don’t want to make it a habit. If you leave your bills unpaid long enough and your cellphone provider sends your account to collections, that will certainly ding your credit.
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21. Cutting Out on a Cable Bill
Similarly, cable providers may send long overdue bills to a collection company, which — you got it — can wind up on your credit report and hurt your credit score.
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22. Canceling a Gym Membership by Canceling a Debit or Credit Card
You may consider a membership or subscription set to auto-renew or auto-pay each month canceled when the card it’s linked to is, but, chances are, the provider doesn’t. Many service or subscription providers have formal cancellation policies in effect and, if you don’t follow them, any unpaid bills that result could wind up in collections and hurt your credit score.
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milos-kreckovic
23. Making a Late Utility Bill Payment
Some newer credit scoring models are incorporating utility bill payments on credit reports. Moreover, just like with your phone bill, if you let a utility account go unpaid long enough, that account could wind up in collections and hurt your credit score.
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24. Failing to Pay Your Taxes
Your tax bill may be too big for you to handle, but shorting the IRS can cause some serious headaches for you down the road. The IRS can take out a tax lien for the money, which alerts creditors the government has a legal right to your property. And, yes, that notice has big ramification when it comes to your credit: people with no other negative items could see their credit scores plummet by 100 points or more, once a tax lien appears on their credit reports.
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Geber86
25. Having a Debt Charged Off
If you let an account go unpaid long enough (typically 120 to 180 days), most creditors will “charge off” the debt. This means they don’t expect the debt to be paid back and are effectively declaring it a loss for their company. Charge-offs can leave a black mark on your credit report and, because you still legally owe that money, can lead to more problems down the road. Creditors can try to recoup the debt via an internal or external collection agency (which can further smudge your credit). They can also file a lawsuit or seek arbitration if the amount you owe is large enough (generally anywhere above the $2,000 mark).
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DNY59
26. Getting a Judgment Against You
If you do get sued for an old debt and wind up losing your case, the judge’s ruling against you can appear on your credit report and damage your credit score. While specific timeframes can vary by state, a paid judgment can continue to show up on your credit report for seven years from the date filed. So can an unpaid judgment, but that outstanding debt can wind up be renewed, which would indefinitely extend its life on your credit reports.
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27. Buying More House Than You Can Afford
Take out a mortgage you can’t really afford, and you may find yourself in big trouble. You could wind up falling behind on your mortgage, which could lead to foreclosure, a short sale or walking away. Though the fallout will vary by how long you’re delinquent, the lender’s loss and factors like state laws, your credit will suffer no matter what.
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28. Foreclosure
Losing your home to foreclosure brings a host of problems, financial and otherwise, along with it, including damage to your credit score. Per a FICO study, foreclosure can cause an excellent score of 780 to drop as low as 620; a good score of 720 to drop as low as 570 and an average score of 680 to as low as 575.
Homeowners who are falling behind on their mortgage may be able to avoid foreclosure by prioritizing their home loan payments, refinancing, asking their lender for a break or seeking assistance from HUD-approved counseling agencies.
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29. Short Sale
A short sale can also help you avoid foreclosure, but it, too, will do damage to your credit. In fact, a short sale can knock as much as 160 points off your credit score, and will remain on your credit report for seven years. To get your score on the road to recovery post-short sale, focus on paying bills on time, keeping credit card balances low and only taking on new credit as needed.
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30. Filing for Bankruptcy
It’s many respects, bankruptcy is the ultimate ultimate credit score mistake. It’s essentially the formal declaration that you can’t pay your debts off as agreed — and, because it’s often the culmination of many missteps, a bankruptcy can haunt your scores for some time. (Some stay on your credit reports for up to ten years.)
The good news is, you can avoid a worst-case scenario post-bankruptcy by making sure the bankruptcy is reported correctly, re-establishing a solid payment history and getting the bankruptcy deleted from your credit reports as soon as it’s eligible.
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31. Getting Evicted
Some credit reports have started incorporating rental data, so missing your rent payments or, worse, getting evicted from an apartment or home could wind up affecting your credit. At the very least, the eviction/missed payments will likely wind up on the specialty credit reports many landlords pull alongside lease applications — and make it much harder for you to get a new apartment.
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kate_sept2004
32. Bouncing Checks/Overdrawing Your Checking Account
Bounced checks or overdrawn checking accounts can also wind up on specialty credit reports used by banks when someone goes to open up a new deposit account. They can also wind up on traditional credit reports if you’re sued or the overdue balance is sold to a collection agency. You can avoid problems by keeping track of your account balances, making note of all transactions, including ATM withdrawals, checks, and debit transactions, and setting alerts that let you know if your funds are hovering dangerously low.
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Xavier Arnau
33. Defaulting on a Business Loan or Credit Card
A business loan may sound like the complete opposite of a personal debt, but some creditors require a personal guarantee when a business owner applies for credit and, if that’s the case, a default on that loan can wind up on your consumer credit reports. To help prevent business debt from ruining your personal credit, set up the proper business structure, which can include an LLC, S Corp. or C Corp., apply for a line of credit with a creditor that does routinely report to the consumer credit bureaus or, of course, make all your loan payments on time.
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EyeOfPaul
34. Not Confirming You’ve Paid Off That Loan
You’ve made the last payment on your car after several years of making payments. It’s a joyous and momentous occasion. Along with the celebration and consideration of what you’re going to do with that extra cash flow, you should also be sure to call the lender and confirm your loan is paid off in full. Get confirmation in writing if possible. This is one of those situations where it’s better to be safe than sorry. You don’t want an extraneous $50 you didn’t realize you still owed to come back and bite you.
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TARIK KIZILKAYA
35. Playing Fast & Loose With Your Social Security Number
Fraudsters can use your Social Security number to open up new credit accounts in your name — and those accounts can do all sort of damage to your credit score. (Scammers, after all, aren’t really known for paying off the bills they run up in someone else’s name.) That’s why it’s important to limit even the legitimate businesses you share your SSN with and to be extremely cautious when you go to type it in online.
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Geber86
36. Shopping on Unsecure Sites
One of the best ways to play it safe on the web is to stick to trusted and secure websites. Always look for https at the beginning of a web address — the S indicates that the site is secure, meaning your information, such as a credit card number or address, will be encrypted. Don’t see a padlock icon on your browser? Take your business elsewhere; otherwise, you risk having your personal information compromised. Remember, identity theft can kill your credit — and take some time and effort to resolve.
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37. Sharing Passwords
You already know reusing your password isn’t the smartest way to protect your online accounts. Using passwords that are easy to guess won’t help either. But sharing the same passwords between services and social networking sites could make you even more susceptible to identity theft, which can impact your credit.
“Every day, in every way, we are all under assault from people who count on our distraction to victimize us,” Adam Levin, co-founder of Credit.com and chairman of Identity Theft 911, said. “It’s time we acknowledge our continuing vulnerability, get more sophisticated security software on our computers [and] select usernames and passwords that do not make it easier to know who we are.”
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