Common Mistakes That Can Damage Your Credit

While there are certainly other factors that lenders may consider when you are applying for a loan, your credit score is probably the biggest factor. Your score is like a long standing overall picture of your financial history, and even tiny mistakes can lead to a less than favorable score.

If you are trying to make a large purchase like a home or a new car, it’s important to make sure your finances paint the best picture of who you are as an adult. See below common mistakes that can affect your credit in a big way, so you can avoid any of these blunders when trying to build your credit.

Opening new credit accounts. The one thing you need to avoid right before making a large purchase is to open any new credit accounts. While you may think this adds to your overall credit allowance, it can ding your score in a big way, even if it’s temporary. When you show several “hard inquiries” into your credit on your report, this can make you look like an irresponsible borrower.

Along those lines, closing any paid off credit debts. Lenders want to see a responsible use of credit, and not a lack of it. If you have been paying down debt without adding to it, it shows you can have credit without going crazy with it. Lenders want to see less than 30% of your overall credit used, but 1 to 10% is ideal. This includes all debts, including long standing loans.

Co-signing for a loan. Taking on someone else’s debt is never a good idea, even if you believe you are helping them out. If you want to help build someone’s credit, it’s better to get them a debt in their name solely, even if you are the one paying the bills each month. If your co-signer defaults on their loan, it’s not only their credit on the line but yours as well.

Making late payments. Even if you are only paying the minimum each month, making payments on time can only help you in the long run. While revolving debt is not the ideal situation, lenders see that it’s not always realistic to be debt-free. When your credit score reflects that you have made payments on time each month, it shows that you are working to lower your debt.

Not checking your score regularly. Most credit cards these days offer free credit scores each month that is part of the benefits of having their card. If you have never bothered to look into this score or pulled your free credit report at least once a year, then you may be in for a few surprises. Perhaps that credit card you cut up long ago has suddenly been making purchases three states away, or that one mistake you thought would be gone right now is still haunting your report. Checking it regularly is the best way to stay on top of what is making your score go up and down, and if you have been a victim of identity theft.

Even with the most cautious of customers, your score can be affected for several years to come after any of these small mistakes. If a traditional lender is not what you are looking for, consider something like a hard money lender. They focus much less on a borrower's credit, and much more on other factors, like property collateral.