6 common credit mistakes to avoid

These 6 credit mistakes can make it harder to get the best loan rates. See how to improve your credit and check your credit score for free. (iStock)

There are many benefits to having good credit. It’s an essential factor in qualifying for the best rates for a mortgage, personal loan or private student loan. A higher credit score can also mean lower monthly premiums for credit-based insurance. And, it can make it easier to get good loan rates if you’re trying to refinance debt or accomplish other life goals.

Avoiding common credit mistakes can help protect your credit score. If you’re not sure where you fit on the credit score spectrum, then you should start using a credit monitoring service to track changes to your credit score. Credible can get you set up with a free service today.

HOW OFTEN DOES YOUR CREDIT SCORE CHANGE?

6 common credit mistakes

Here are six common credit mistakes to avoid:

1. Missing payments
2. Not checking your credit
3. Frequent credit applications
4. High credit utilization rate
5. Closing credit cards
6. Early retirement plan distributions

1. Missing payments

Payment history is the most important factor when it comes to your credit and accounts for 35% of a FICO score, according to FICO. Missed payments can quickly lead to a subprime credit score and can stay on your credit report for up to seven years.

Making the minimum monthly payment for loans and credit cards keeps these accounts in good standing and prevents late fees.

2. Not checking your credit

It’s important to check your credit report regularly to search for identity theft and fraudulent accounts opened in your name. You can also catch credit reporting errors like inaccurate balances and payments.

Potential fraud and reporting errors can negatively impact your credit score until you file a dispute.

With a credit monitoring service, you can get instant alerts on late payments, fraudulent activities, credit score changes and more. Check out some of Credible’s partners here.

UNEXPECTED CREDIT REPORT ITEMS SHOWING UP? THIS COULD BE WHY

3. Frequent credit applications

Applying for too many credit cards and loans in a short period is another common credit mistake. Credit applications require hard inquiries that temporarily penalize your credit score and can reduce your approval odds for new accounts.

Having too many new accounts can also hurt your credit, as you may no longer qualify for the best loan rates. A longer credit history is more likely to result in a higher score.

4. High credit utilization rate

A high credit utilization rate on revolving accounts, like a credit card, can negatively impact your credit. Carrying a credit card balance can also hurt it, even if you make the minimum monthly payment and keep the account in good standing.

Lenders may perceive a borrower with a high credit card balance or large loan balances as more likely to default.

5. Closing credit cards

Canceling credit cards that are several years old can be an easy credit mistake to overlook. Having fewer accounts limits the risk of fraud and default but reduces your total available credit and the length of your credit history.

6. Early retirement plan distributions

Some people may use retirement funds to pay off high-interest debt quickly. This decision can lead to a credit score increase and help avoid short-term financial trouble. But early retirement distributions are subject to penalties and taxes and can result in future stress.

To see where you fit in with your credit score, turn to a credit monitoring service. Credible’s partners can help you find your credit score, history, alert you to potential fraud, and more.

WHAT IS CREDIT MONITORING, AND HOW DOES IT WORK?

How to improve my credit

If you’re looking for ways to boost your credit score, consider these options that could help get you where you want to be:

1. Refinance debt
2. Pay your full credit card balance
3. Monitor your credit
4. Dispute credit report errors

1. Refinance debt

Refinancing your debt with a personal loan at a lower interest…