Top Five Do's and Don'ts of Credit (Week 2)

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Top 5 Do's and Don'ts of Credit (week 2)

 Excerpt from Credit Academy Blog

Maximizing your credit score isn't easy. Last week's blog article talked about all of the things that you should strive to do on your credit to give you the highest possible credit score. This week, we are going to dive into the things that you should avoid doing on your credit. These things will definitely decrease your score. So, they should be avoided at all costs.

Top 5 Things to Avoid Doing on Your Credit

1)      Do not hire a company that charges you monthly fees! You never know how long it will take to get your credit score up. So, you could be spending way more money with a company that charges you a monthly fee.

2)      Don't spend more money than you have! I know this sounds a little crazy, but only you know your budget. Just because a bank tells you that you are pre-approved for something doesn't mean that it really fits in with your budget. Often times banks use your gross income (before taxes are taken out) instead of your net income (after taxes are taken out) to calculate your pre-approval amount. And, their numbers don't account for things like food, day care, etc. So, before you purchase anything new or charge something on your credit card, please stop and think if it is really something that you need and can afford every month. 

3)      Don't pay off all items on your credit report!  Your credit scores can drop if you pay off old items on your report. If you are looking long term, then it is OK to pay off all of your collections and charge off accounts. However, if you are trying to purchase a home in 4 months, now may not be the best time to pay off certain items. This is something that I can help you with. Also, never close out all of your accounts on your report. You need monthly activity on your report in order to keep your scores. So, keep at least 1 item active on your report.

4)      Don't obtain new debt unless you have to. If you need to buy a new car, then this doesn't apply to you. However, if you are trying to qualify for a home purchase in 3-4 months, a new debt will drop your credit score until you can prove that you can manage your new debt. So, this may hinder your pre-approval status on your new home.

5)      Don't co-sign for anyone else in your family other than your spouse! This is something that I see all the time. With good intentions you help a family member get a car or other new debt. There are several problems with this though. First, it may affect how much you can qualify for when you go to purchase a new car or home. Second, what happens if they miss their payment or if the debt is charged off? It still goes against your credit! Since you are a co-signer, you are technically responsible for the debt. So, if it doesn't get paid, your credit will suffer. So, co-signing may not always be the right thing for you to do.

Maximizing your credit score is something that takes time and effort.


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