Top Five Mistakes When Building Credit:

If you no longer want your poor credit to cause you embarrassment and you think you are ready to improve your credit score soon, you just made the right choice. While it may seem hard or almost impossible to increase your credit score at this stage, time and all the positive things you can do right now can work in your favor to raise your credit score.

To help you in your journey of building your credit, there are five common mistakes you need to avoid at all cost.

Mistake #1: Assuming That You Will Have a Good Credit Score As Long as You Pay On Time

While on-time payments of your credit card debts are great for your score, this is not enough to have a good quality score. If you use up a large portion of your credit limit monthly, it won’t help lower your credit utilization ratio even if you pay everything off on time.

The credit utilization ratio is among the key factors when it comes to creating your score. Your credit will be better if this is lower. Maintaining your utilization ratio at less than 30% per credit limit will be more beneficial for your credit.

Mistake #2: Closing Your Credit Card

You don’t necessarily need to close a credit card just because you are not using it. Many consumers close their unused credit cards but this won’t help boost your credit utilization ratio. It may even end up hurting your credit score. Thus, allowing the card to remain open even if it is rarely used will be more helpful. Just try using it every now and then to ensure that the card issuer doesn’t close your account because of inactivity.

Mistake #3: Sending in Partial Payments

Making partial payments of your debts will never put you in a positive light in the eyes of credit bureaus or debt collectors. They will still report your late payments and it will put you at risk of delinquency on your report. In case you are having a hard time in paying your minimums each payment cycle, try to consult a credit counselor prior to trying to appease your credit with partial payments.

Mistake #4: Paying Off a Loan Ahead of Time

While it will be beneficial for your finances to have your loan paid off early on, particularly if the loan comes with a rather high interest rate, this might still end up hurting your credit score.

You might assume that making an early payment of your loan will help your credit. However, the truth is that this can lower your credit mix, thus lowering your credit score as a result. Thus, if your loan’s interest rate doesn’t burden your finances that much, it will soon benefit you if you don’t pay off your loan early.

Mistake #5: Rejecting Higher Credit Limits

Rejecting higher credit limits only makes sense if you know that you tend to overspend. If not, keeping your expenses at consistent rate and increasing credit limit at the same time will increase your score since it will lower your credit utilization ratio. In most cases, accepting higher credit limits will raise your score as long as you don’t overspend.