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Four mistakes that are hurting your credit score

Credit scoring is now a big business in itself. There are several factors means that credit providers could see your activity, and use it to gauge your applications. Not only do these affect the chances of your approval, but also influence the overall amount and the terms of repayment that you will be given if ever approved. Apart from these, credit scores can also affect your insurance premiums, as well as other aspects of your financial identity. Thus, it is very important for you to ensure that your credit score is in great shape, although, we sometimes make mistakes that we do not know are already hurting our scores. Here are four financial blunders that can make your score decline.

Missing your non-credit bill payments

We all know that missing payments for credit cards, loans and mortgages will lead to lower credit scores. However, what many do not realize is that non-credit accounts, such as utilities, medical bills, and other responsibilities also impact the credit rating. The non-payment or the delay of payment for these accounts can be reported to the collections department of these companies, which are then submitted to the credit bureaus.

Maximizing your credit limit

Several credit scoring companies look at your credit utilization and use it to determine your credit score. If you are using most or all of your available credit, then this could be a warning sign that you are unable to manage your debt well. Regardless if you pay the minimum on time and you do not exceed the limit, the fact that you are unable to maintain a low balance on your credit card shows your weakness when it comes to paying off debt. As such, this tends to make credit companies to turn down your application – as the additional credit may be too much for you to handle, and that you may not be able to pay back the money you owe them. If you could keep your balances to less than half or even less than a third of your overall limit, then this is ideal and would not be a detriment to your credit score.

Cancelling your credit cards

It is a natural tendency to immediately cancel credit cards especially after it has been cleared of debt. However, this can hurt your credit score in several ways.

First, doing so reduces your available credit. Because credit scores look at the utilization of your credit – how much you have used vs. how much you can use, the presence of debt in other accounts will increase your utilization, and in effect lower your credit score.

Second, cancelling your credit card also reduces the length and duration of your credit history. Many of the credit scoring models also look at the age of your accounts. The longer you are able to maintain good credit, the better it is for your credit score. Thus, cancelling your credit card – especially one that you have had for a long time, will negatively impact your score.

Thinking that all credits were made equal

There are different kinds of credit – loans, credit cards, and mortgages, among others. And they affect your credit in different ways as well. A credit card that was issued by a specific retailer, and is not usable for other establishments, is considered to be less positive than a bank-issued credit card. Furthermore, payday loans are also known to negatively impact the score, as compared to a well-maintained and paid car loan. Not all credit is good or detrimental to your score – especially if you pay them on time and use them wisely. However, some types of credit influence your score more than the others, and it is important to know which ones influence your score positively.

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