Financial missteps that can affect your credit score
Some common missteps can make it easy to fall into credit card debt, which can adversely affect
consumers’ credit scores. Avoiding those missteps can set borrowers up for a lifetime of fi nancial freedom.
The importance of a good credit
score cannot be overstated. Adults
who handle credit responsibly
may save tens of thousands of dollars in
interest charges over the course of their
lives, as a strong credit history helps to
elevate credit scores. The higher an applicant’s
credit score, the more favorable
loan terms for big-ticket items like vehicles
and homes will be.
Though the significance of a strong credit
history is a lesson in financial literacy
emphasized to many people as early as
adolescence, it’s still easy to make some
mistakes along the way. Many people’s
first encounter with credit comes around
the age of 18, a point in time when young
men and women may not recognize the
gravity of their financial decisions. That
makes it easy to fall into some bad habits
that can unfortunately have a long-term,
negative impact on individuals’ financial
futures. The following are some common
credit missteps that consumers can
look to avoid as they seek to build strong
credit histories.
• Missed payments: The credit reporting
agency Equifax® notes that even a
single late or missed payment can lower
a person’s credit score. Though it’s always
best to set up automatic payments so no
payment is ever missed, those who haven’t
taken advantage of that capability
who miss a payment should know that
it generally takes 30 days for a missed
payment to affect a credit score. If you
simply forget to make a payment, Equifax
® indicates that some lenders and
creditors may not even report a missed
payment if a full payment is made within
30 days of the initial due date. If you
missed a payment because you can’t afford
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might be around 100 percent and might
even be higher once interest charges are
factored in. A high balance on an existing
card too often compels young consumers
• Opening too many credit accounts:
It’s hard to turn down what feels like “free”
money, and many consumers new to credit
might open new credit cards, particularly
if a current account has a high balance.
Too many credit cards can land consumers
in considerable amounts of debt. Equifax
® notes it’s generally recommended that
consumers have no more than three credit
cards, but some consumers who struggle
to make payments each month might be
better off with just one card.
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to pay off the balance, then chances
are you’re committing another common
misstep.
• Over-reliance on credit: Utilizing
credit too much is another common mistake
that can quickly land consumers in
debt. Resist using credit to finance unnecessary
expenditures, like dining out
or a night of entertainment. Only use
credit to make purchases you know you
can afford to pay off in full come your
monthly due date. Credit utilization ratio
is another metric used to determine
credit score, and it refers to the percentage
of your overall credit availability you
use each month. The financial experts
at Chase suggest a good credit utilization
ratio is 30 percent or less. If you’re
routinely maxing out your credit card(s)
and can’t afford to pay the balance in full
each month, then your utilization ratio
to make another costly misstep.
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