Some Common Credit Score Mistakes

It is essential to clean your credit report before applying for secured or unsecured loans. Lenders assess your credit worthiness based on the information given in your credit report. If you manage to clean your credit report before applying for a loan, chances are that your lender will increase your credit limit and offer you low interest rates. Based on your past credit transactions, credit report agencies evaluate your overall score, which is also checked by lenders to assess your future repayment potential. For improving your credit score, it is important that you understand exactly how your credit score gets affected by your credit transactions and how to avoid making common credit score mistakes.

It is a common misconception that applying for high interest rate loans and paying off your monthly installments will help to clean your credit score and increase your credit score. In reality, such loans are considered high risk and may not actually give you additional points or help to clean your credit report. Similarly, using multiple credit cards may not improve your credit score and may actually lead to remarks such as ‘too much consumer credit’ in the ‘remarks’ section of the copy of your credit report.

The belief that paying off the monthly minimum due amount on your credit card bills improves your credit score is also marginal. In reality, this only results in an increase of your overall balance that is due and may cause deep drops in your credit score. Withdrawing cash from your credit card may also affect your credit score as it attracts higher interest rates and extra fees. When you exceed your credit card limit, you are required to pay an over-limit fee. This can lead to remarks such as ‘high proportional amounts owed’ on the copy of your credit report and reduce your credit score. Delaying your monthly due payments attracts higher interest rates on the balance due amount, which can adversely affect your credit score. Applying for a loan in the name of more than one person increases your debt-to-income ratio, which can reduce your credit score and lead to remarks such as ‘too many consumer accounts’ on the copy of your credit report.

Lack of communication with your creditors can force them to send negative feedbacks to credit report agencies, which might show up on the copy of your credit report in the form of reduced credit score. Make sure that you communicate with your creditors promptly if you are facing debt problems and have defaulted on your monthly due payments.

Credit report agencies handle thousands of customers and source data from varied sources. This can often lead to confusion if you do not provide your exact name or address. Simple errors on your part such as forgetting to mention Sr. or Jr. can lead to credit report mix-ups with borrowers who have similar names.

For avoiding such problems, it is necessary to clean your credit report on a regular basis. It is important to get a copy of your credit report at regular intervals and check it thoroughly for any errors or irregularities. Any dubious entries that might be present on the copy of your credit report should be informed to your credit report agency.