credit card problems


Your Credit Score – Three Common Mistakes

Though it's common knowledge that a good credit score is the key to low interest loans and credits cards, it's possible you've made a mistake that affects that credit rating without realizing it.   Below are the three most common mistakes consumers make when dealing with finances and credit:  (continued below)

1.  Failing to pay on time and missing payments

Though as a rule only payments that are 30 days late are reported to credit bureaus, paying even a day or two late can result in your being labeled as "slow pay" on credit reports.   What does this mean?  If a potential lender sees that you were late two times last year, and only about a week each time, they may be able to forgive it, knowing that life simply gets in the way at times.   If you have established a pattern of paying your bills late, it is a red flag to potential lenders.

2.  Closing old or paid credit card accounts

If you have paid for years on a credit card account and finally reached a $0 balance, it may seem logical to close out that revolving charge account.  You may not plan to use it again so why keep it open?   If you have a good history of payment on that account, you will be wiping that record from your credit score as accounts that inactive or closed disappear from the file after seven years.  Use of the account once every two or three years will keep it active.

Secondly, a paid off account that you are not using raises the amount of "unused credit" showed by credit bureaus and is a positive for your score.  The spending limit on an account may be listed as $5000 yet once you have used 60% of that limit, you are on thin ice with creditors.  Those making loan decisions look at the total amount of credit you have available AND the percentage of that credit you are using.

If you have one revolving account with a spending limit of $5000 and have a balance of $4500 on that account, you have used 90% of your available credit - not good in the eyes of lenders and underwriters.  However, if you also have an account you have paid off and no longer use that carries a limit of $5000, what shows is $10,000 in available funds and that $4500 balance, and you are viewed as using only 45% of credit available.  See the benefit?

3.  Shopping for credit

Credit agencies are notified every time there is an “inquiry” about your credit history, and too many inquires will hurt your score.  No one (except the credit reporting agencies) knows the formula for how many inquires cause a red flag but it is commonly believed that as few as two or three credit inquiries in a short period of time will be suspect.

There are two types of "inquiries" linked to your credit file.  The first is a direct result of the customer having applied for some type of credit or service.

This often happens when an applicant believes he'll apply for all and choose the best. A potential lender sees only a high amount of credit being applied for short term.

The second type of inquiry is not harmful.  Firms that issue credit cards, car loans, second mortgages, etc are allowed to inquire about your general credit condition without your permission.  These inquiries are shown only to the credit bureau and the consumer and are not counted against you.  If you want - and it is advisable - you can send a postal letter to each credit agency telling them you do not want any unsolicited inquiries to be allowed on your file.    The only thing you might miss is the "pre-approved" junk mail.