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How to avoid the big mistakes that lower your credit score

Updated on August 16, 2011

In these tought financial times, it seems that is getting harder and harder to received financing. With the "credit crunch", lending institutions are warry of lending money to people with poor credit records, since this means added risk in already difficult times.

This doesn't mean, however, that you cannot get financed to buy what you need, be it a brand new car, or a better home. It all depends on how well you are managing your credit. And your credit score is an important piece in this game.

You need to play by the rules set by the credit report companies, and make sure that you credit is good enough to get the financing you need.

How to improve your credit?

What most people don't know, is that improving your credit is just a matter of following some rules. You don't need to make millions, or know everyone in the banking industry to get a good credit score. It is just a matter of being responsible with your financial decisions, and knowing what counts towards a good credit.

Credit report companies know everything about your life. They know how many credit cards you have, how often you get over limit, what was the last time you asked for an increase in your credit line. With so much information, they have really important things to say about how you manage your money.

To be successful in keeping your credit score, you need to know the things that can hurt your credit, and avoid it as much as you can. So, here is a list of things that you should avoid, in order to get a good credit score.

Things that can kill your credit score

Mistake 1: Being late in your credit card payments: most people think that being late in a credit card payment is a simple matter. After all, the credit card company will issue a late fee anyway: you just need to pay the fee and you are ok. That is not so easy, however.

Credit card companies share information about customers that are late in payments. The reason is that such people are riskier for the lending companies. Such a person is either in financial trouble, or is not a very trustworthy person, in terms of paying debts in time. Therefore, a good rule to follow is: never be late on payments. Even you need to pay only the minimum, make the payment on time.

Mistake 2: Having too many credit cards

With the easy with which you can get a credit card these days, it comes as a surprise that you can be penalized by having too many credit cards! The truth, however, is that having more credit cards than you need is a sign of trouble. The reason is that you have more rope to hang yourself, if you start to use all that plastic. Second, if you use too many cards you will have more payments to make, which increase the possibility of late payments, and the consequences explained above.

Finally, if you have too many cards you also have additional liabilities with the credit companies. What if somebody steals one or more of your credit cards? You will get into a giant debt, which you may not be able to pay.

Mistake 3: using too much credit in one credit card

Another potential problem that can hammer your credit report is using too much credit in at least one credit card. Some people use almost all the available credit line in a credit card, then go to the second card, until they are all maxed out.

Even if you use only one credit card, you should not use the maximum. Credit companies hate this for several reasons. The first is that you can easily use more than you limit. If this happens, there are additinal charges, and your credit card can be even temporarily disabled. In these circunstances, you can easily make mistakes to your credit that are hard to repare.

Another reason why maxing out credit cards is bad, is that it says something bad about your financial conditions. If you are using all the limit of your credit card, it means that your financial situation is not good enough, and you need to use more credit. Credit companies are trained to smell such situations, and they will lower your credit score for this kind of activity

Maintaning a good score

The good news, however, is that all these situation are easy to prevent, if you plan your financial life with more care. Using credit cards is not completely bad, in fact it is the easiest way to create a good credit history. However, if you are not careful, such mistakes can bring you a lot of trouble, exacly in the moment when you need credit most, such as when buying a new home, or a car.

By avoid some of the problems discussed above, I am sure that you can improve your credit score, and get all the money you need to achieve your dreams (and still pay low interest rates...)


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