Having less-than-perfect credit can set you up for financial difficulty and make it harder for you to accomplish your dreams. Spiraling into bad credit can also make it more complicated and expensive to get a car or home loan. Plus, poor credit scores mean higher premiums on things like auto, renter’s and homeowner’s insurance.
Your credit score predicts how likely you are to pay your bills late over the next two years, and Forbes Advisor says 90% of top U.S. lenders use the three-digit FICO score for this purpose. Factors that impact your score, which can range from 300-850, fall into five categories: payment history (35%), current amount owed/debts (30%), length of credit history (15%), new credit applications (10%) and credit mix (10%).
Looking to improve your credit score? Avoid these four things:
1. Late payments
Payment history is the biggest chunk of your FICO score, and even one late payment can chip away at your points. The same is true if you cosigned a loan. If your cosigner doesn’t pay, your credit score will slip unless you foot the bill yourself.
PRO TIP: ONLINE BILL PAY: Use Bill Pay in Online Branch to organize bills, schedule payments and get reminders when bills are due.
2. Maxing out your credit cards
Going on a spending spree feels great in the moment, but maxing out your cards will also max out your credit utilization ratio. That’s the amount you owe divided by your available credit limit. The higher your balance, the higher your utilization ratio.
PRO TIP: INCREASE CREDIT LINE: Ask for a credit line increase. The larger your credit line, the lower your utilization ratio becomes. Just don’t use it as an excuse to go shopping.
3. Not paying at all
If a late payment dings your credit score, imagine what completely ignoring your bills will do! Too many missed payments puts you at risk for debt collections and charged-off accounts, both of which stay on your credit report for seven years.
PRO TIP: REACH OUT: We understand that life can throw you curve balls. Contact your lender to see what your options may be. We’re here to help.
4. Applying for more credit
’Tis the season for holiday shopping, but opening too many store credit cards in a short period of time is a sign of risky behavior to most lenders. You think you’re taking advantage of great deals and discounts. They’ll think you’re short on cash.
Bad credit can have long-term negative effects on your overall financial goals. That’s why it’s important to stay current on your score. Until April 20, 2022, you’re entitled to a free weekly credit report from each of the three major credit bureaus: Equifax, Experian and TransUnion. Visit AnnualCreditReport.com to request yours.
NO CREDIT HISTORY? NO PROBLEM.
Become an authorized user.
Ask a family member (with a history of paying on time) if you can be added as an authorized user on their card. That card’s payment history will now be added to your credit file.
Get a credit card.
A credit card may be worth considering when you’re just starting out on your credit journey, but be careful. Every swipe counts against your available credit limit, not to mention the interest you’ll pay if you don’t pay it off every month. Keep in mind there are different types of credit cards, so you’ll want to look for a card that doesn’t charge an annual fee.
Sign up for a secured card.
A secured card is backed by a cash deposit (normally $200), and you can use it like any other credit card. Secured cards act like training wheels as you learn healthy habits on the path to good credit.
Add your name to bills.
If you have a roommate, make sure you share who has their name on what bill. That way you’re both getting credit for timely payments.