Top 3 Credit Mistakes Which Will Harm Your Credit Scores
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Top 3 Credit Mistakes That Can Harm Your Credit Scores
Summary
Credit scores play a crucial role in determining your financial credibility. Lenders such as banks and credit card companies use these scores to assess your financial reliability. Maintaining a strong credit score is essential, and this article highlights the top three credit mistakes that can negatively impact your scores.
Common Credit Mistakes
1. Missing Payments
Your credit score is largely influenced by your payment history. Lenders consider this information to assess the likelihood of you missing future payments, which is crucial when approving loans. Here’s how missing payments can damage your credit score:
- Frequency of Late Payments: Occasional late payments might happen due to a busy schedule, but frequent lateness can significantly harm your score. Make punctual payments a habit to maintain a healthy credit profile.
- Recency of Late Payments: Recent late payments, especially within the past two years, heavily impact your score. Credit models predict your payment behavior based on recent history, so frequent lateness can lower your score.
- Severity of Late Payments: The severity also matters. A 90-day late payment is more damaging than a 14-day delay. If you’re delayed, aim to minimize the lateness to reduce negative impacts on your score.
2. Settling Debts for Less
Settling debts for less than owed can lead to "deficiency balance" entries in your credit report. While debt consolidation services might negotiate reduced settlements, these are reported as negative items to credit bureaus and can affect your score for up to seven years. If possible, negotiate with your lenders to avoid reporting deficiency balances to preserve your credit score.
3. Overutilizing Credit Card Limits
High balances on your credit cards can adversely impact your credit score. Overutilization occurs when you use a large percentage of your available credit. For example, if you have a $10,000 limit and a $5,000 balance, your utilization is 50%. Higher utilization rates earn fewer points in credit scoring. To maintain a strong credit score, aim to keep your utilization percentage low, even if paying off your card completely each month isn’t feasible.
By avoiding these credit mistakes, you can maintain a good credit score and enhance your financial trustworthiness.
You can find the original non-AI version of this article here: Top 3 Credit Mistakes Which Will Harm Your Credit Scores.
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