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Your credit score is one of the most important parts of your financial picture. Yet many people do their best to make sure their credit score is as low as it can be. Imagine the difference in costs and interest rates if you were to attempt to purchase a new car with a score of 600 versus 700.
Here are the five things that people do most often to torpedo their own credit scores:
1. Pay bills late:
This is doubly true for loans and credit cards, but all of your bills can affect your score. A few days on most bills isn’t the issue, it’s people who pay 30, 60, even 90 days late that are really causing themselves trouble.
2. Max out credit cards:
I know in today’s rough financial times, many are paying only minimum payments while charging up their cards to try to get by. This will come back to haunt you, and quick. The closer to the credit limit your credit cards are, the worse your credit score. You see, the higher your total owed versus your total available credit, the more of a risk you are seen to be.
3. Applying for more credit:
This ties in with #2 since quite often. Those whose credit is getting slim will apply for more credit to try to keep the cycle going.
Although the federal government seems to think they can get away with this, the Average Joe can’t. Eventually, your credit will crash. The more credit you apply for, the lower your score – even worse if you’re rejected.
4. Ignoring credit reports:
It’s hard to imagine anyone in today’s world that isn’t regularly checking their credit reports, but there are a lot who don’t.
Check your reports at least once a year (it’s free). Most creditors see two checks a year as being OK, but more than that might indicate you’re up to something. Checking your credit not only keeps you informed about where you stand, but it lets you find mistakes and potential fraud and fix it.
5. Living outside their means:
Credit is not a free ride that allows you to spend more than you earn. If your income is $5,000 a month, your spending should be less than that every month, not more.
Many Americans have learned this the hard way in the past couple of years, but there are plenty who still have not realized it. In reality, a $5,000/month income does not mean a $4,999/month spending budget.
Learn to save and UTILIZE your credit rather than living off of it. You should have several paychecks in the bank and not be using your credit cards to float until your next paycheck so you can pay the bills.
Wise financial living is not about how much money you make, it’s about how much you spend.
Fred Leo runs BestCDRatesToday.com, a personal finance website dedicated to helping people find the best CD rates. Please check out his article on Chase CD Rates.