Most of us already know the basics of keeping a good credit score: pay your bills on time and try not to max out your credit card. It’s simple enough. But sometimes, even when you’re doing all that, your credit score doesn’t seem to budge, or worse, it goes down. You might be wondering what’s going on, especially if you’re careful with your money. It could be the small things you’re not thinking about that are actually making a difference. These tiny mistakes might not seem like a big deal, but they can sneak up on you and drag your credit score down.
7 Sneaky Credit Score Mistakes
Let’s go over those sneaky errors so you can fix them and get your credit score moving in the right direction again.
1. Overlooking Small Debts
Consistently paying off big-ticket items like mortgages, car loans, and major credit card bills is crucial, yet it’s easy to overlook smaller debts, thinking they won’t matter much.
This could be anything from a few dollars left on a store card to an unpaid utility bill. These might seem minor, especially when you’re juggling other financial priorities or working within a tight budget, but it’s important not to let them slide.
Even small debts are reported as late payments if you miss them, which can negatively impact your credit score. Moreover, these minor amounts can quickly snowball into larger debts due to late fees and additional charges, turning what was once a small oversight into a significant financial burden.
Solution:
If you find yourself strapped for cash and unable to clear the full balance on your debts, prioritizing at least the minimum payments on your accounts is a crucial strategy.
Making the minimum payment helps to avoid late fees and additional interest charges, and most importantly, it keeps your account status as “current” rather than “delinquent” on your credit report. This practice is vital for maintaining a healthier credit score.
Additionally, if you’re facing financial difficulties, reaching out to your lender or creditor to discuss your situation can be a proactive step.
Many lenders are willing to work with you to establish a payment plan that fits your current financial capability. This could include adjusting your payment due date, reducing the interest rate, or temporarily lowering your minimum payment amount.
2. Overlooking Utility Bill Payments
Utility bill payments might not seem like they would impact your credit score, given they’re not traditional loans or credit lines. However, it’s a common misconception that these payments are entirely separate from your credit health.
In reality, while utility companies usually don’t report your on-time payments to credit bureaus, they certainly can report delinquent accounts. If a utility bill is left unpaid for an extended period, the utility company might hand the account over to a collection agency, and that’s when it hits your credit report.
This negative mark can stay on your report for up to seven years, significantly affecting your credit score.
Even if you aren’t using a utility bill payment reporting service to boost your credit score through regular, on-time payments, failing to pay these bills can still backfire and harm your credit score.
Solution:
To avoid such a scenario, it’s essential to treat utility bills with the same priority as other monthly payments. If you’re in a tight spot financially, contact your utility provider as soon as possible.
Many companies offer payment plans or extensions to help you manage your bills without becoming delinquent.
Additionally, consider setting up payment reminders or automatic payments for these bills, ensuring they’re paid on time each month.
3. Making Numerous Credit Applications
It’s a common piece of advice that managing a diverse mix of credit can positively impact your credit score, leading some to apply for numerous credit cards in a bid to quickly build or improve their credit mix. The immediate incentives, like sign-up bonuses and discounts, can certainly be tempting.
However, this strategy can backfire and potentially lower your credit score instead of bolstering it.
First of all, each credit card application triggers a hard inquiry into your credit report. This can slightly decrease your credit score.
While the impact of a single inquiry might be minor and temporary, applying for several credit cards in a short span compounds the effect, creating the impression that you’re in desperate need of credit. This can be a red flag for lenders, signaling potential financial instability.
Next, your credit score benefits from a longer credit history. Opening several new accounts at once lowers the average age of your credit accounts. This can negatively affect your score.
A longer credit history provides lenders with more information on your borrowing behavior, making you a less risky borrower.
Finally, there’s the credit mix issue. When it comes to credit diversity, not all credit types are viewed equally. The idea behind having a diverse credit mix is to show lenders you can responsibly manage different types of credit.
However, multiple credit cards (whether secured, store, or student credit cards) are all considered revolving credit and do not diversify your credit types.
Solution:
Being strategic about when and how often you apply for new credit is crucial. If you’re planning significant financial steps like purchasing a home or a car, it’s wise to limit credit applications to avoid negatively impacting your credit score.
Carefully consider each credit opportunity and its impact on your overall financial health, focusing on long-term goals rather than short-term incentives.
4. Going on an Extended Loan Shopping
Applying for multiple loans, whether they’re for cars, homes, or education, over an extended period might seem like a smart way to dodge the credit score dip that can come from applying for too much credit all at once.
Some people think that by spacing out their applications, they’ll sidestep the issue of multiple hard inquiries lowering their score.
However, there’s a catch to stretching this process out too much. While it’s true that applying for various credits in quick succession can hurt your score due to several hard inquiries, dragging your loan shopping over too long a period can also backfire.
The FICO scoring model is designed to encourage smart shopping by providing a grace period during which multiple inquiries for the same type of loan are treated as a single inquiry. This grace period is typically around 14 to 45 days, depending on the FICO scoring model used. The period allows consumers to shop for the best rates without fearing damage to their credit score from multiple hard inquiries.
Once beyond this timeframe, each new inquiry can be counted separately, potentially harming your credit score. This can give lenders the impression that you’re continuously seeking new credit, which may be interpreted as a higher credit risk.
Solution:
To minimize the impact of loan shopping on your credit score, it’s crucial to act strategically. Aim to complete all your loan applications within the FICO grace period of 14 to 45 days, treating multiple inquiries as just one.
Opt for pre-qualification options when available, as these usually involve only soft inquiries that won’t affect your score.
5. Forgetting About your Business Credit Cards
When companies issue business credit cards to cover job-related expenses, it’s not uncommon for an employee to be listed as the principal cardholder.
This arrangement means that while the company is responsible for paying the bill, the credit activity—good or bad—can impact your personal credit score.
Late payments, high balances, or other negative credit behaviors on the business card can reflect poorly on your personal credit report if you’re the primary cardholder. This is because the credit card issuer may report the account’s activity to the consumer credit bureaus under your name.
That is why it is crucial to understand the terms of your business credit card and how its management can affect your personal credit.
Solution:
To safeguard your personal credit, treat the business credit card with the same care as your personal cards. Ensure that payments on the business card are made on time and try to keep the balances low.
If you’re not directly handling the payments, stay in communication with the person or department in your company that does.
6. Allowing Unreported Credit Activities
When it comes to building your credit score, not all of your financial activities may be getting the recognition they deserve. This is because not every creditor reports to the major credit bureaus.
As a result, some of your diligent payments and responsible credit use might not be reflected in your credit score. Specifically, this can include unreported payments, which means that despite your timely payments, your credit score doesn’t see the benefit.
Worse yet, this lack of reporting could inadvertently appear as delinquency, further impacting your score negatively if the credit bureaus aren’t receiving any data on your account activity.
Additionally, for those utilizing credit-building tools such as secured credit cards, loans, or rent reporting services, the effectiveness of these tools hinges entirely on their activity being reported to the credit bureaus.
Without this reporting, your efforts to improve your credit score might be in vain. It’s crucial, then, to not miss out on the opportunity to earn positive points towards your credit score through these mechanisms.
Solution:
First, if you suspect that your accounts or payments are not being reported, reach out to your creditor to inquire about their policy on reporting to credit bureaus. Understanding their reporting practices can give you insight into how your credit activity is being recorded.
If you discover that they do not report to the credit bureaus, you might want to consider transitioning to a creditor who does. This ensures that your responsible credit behavior is accurately reflected in your credit score.
Additionally, when choosing credit-building tools or services, verify upfront that they report to at least one of the major credit bureaus. This way, you can be confident that your efforts to build or improve your credit score are recognized and rewarded accordingly.
7. Allowing Errors on Your Credit Report
Errors on your credit report are more common than many people realize. The unfortunate thing is that they can significantly impact your credit score if left unaddressed.
These inaccuracies can stem from simple clerical mistakes, such as name misspellings or incorrect account numbers, to more serious issues. That could refer to accounts that have been fraudulently opened in your name or transactions you didn’t authorize.
Other detrimental errors might include outdated information, closed accounts reported as open, duplicate entries of the same debt, or incorrect reporting of your payment history.
Each of these errors can lower your credit score unjustly. Consequently, it can affect your ability to obtain loans, secure favorable interest rates, or even qualify for certain jobs.
Solution:
The first step is to obtain your credit reports from the three bureaus: Equifax, Experian, and TransUnion. Thoroughly review them. The federal government entitles you to a free copy of your credit report from each bureau once every 12 months. Access it through AnnualCreditReport.com. Scrutinize these reports for any discrepancies or unfamiliar activities.
If you spot any errors, dispute them promptly with the respective credit bureau. Each bureau outlines its own process for disputing errors, usually on its website.
Provide any documentation you have to support your dispute, such as payment records or court documents.
It’s also wise to contact the creditor who reported the incorrect information directly. It is its obligation to investigate and report its findings to the credit bureau.
Bottom Line
By being aware of these less obvious factors, you can take proactive steps to maintain and improve your credit health.
Monitoring your credit report, managing debt responsibly, and understanding credit reporting can safeguard your credit score. Following our tips can ensure that you remain attractive to future lenders.