Let’s say you decide you want to
start working on your finances, and building or fixing your credit. Like most Americans, you were never really
taught the ins and outs of how Credit works. In fact, most people today make
financial decisions based on what they have heard or learned from their
parents, relatives, friends, the internet, television, etc., but how many of us
have actually sat down with a professional financial consultant to learn how to
have a zero based budget, manage expenses, save, or build and maintain good
credit?
Mistake #1- CLOSING YOUR CREDIT CARD ACCOUNTS
Depending on your situation, you
may need to look at your options first before making a haste decision to close
an account. Never close an account with
a creditor because they did something to upset you. If you have missed a couple
of payments or a payment got lost in the mail, try to work it out and get back
on track rather than just ignoring the situation and letting it go. Also, never close an account that is paid
off, especially if you have had it for several years. One of the components of the FICO score is
the length of credit history and the credit to debt ratio. Often times, it may seem logical to close a
paid off account, but closing it could actually lower your credit score.
Mistake
#2- TRADING IN YOUR VEHICLE FOR A NEWER ONE
Car Dealerships are well known
for their advertising strategies that draw in previous customers to trade in
their current car for a newer one. You
have probably received these offers in the mail and thought about doing it
yourself. Well, depending on your
situation, these deals can be detrimental to your finances. For example, if you’re current car loan is
NOT paid off and you have NO savings for a down payment (we typically recommend
between $3000-$5000), it probably wouldn’t be wise to trade in your car. Also,
if your credit score is below 700, we recommend you begin working on raising
your credit score so you can benefit from lower interest rates as well. Our
recommendation is to hold off trading in your vehicle until your car is paid
off, you have a down payment, and your credit score is good.
Mistake
#3- APPLYING FOR MULTIPLE CREDIT CARDS OR LOANS WITHIN A SHORT PERIOD OF TIME
You decide you want to start
building your credit, or that you need a loan to get something you need or want.
You begin by applying in person or online to multiple banks or going to
multiple retail stores in hopes of getting approved for a credit card or car loan. Unfortunately, you were unaware that one of
the components of your FICO credit score is the number of HARD inquiries on
your credit report. Whenever you apply
for a loan or credit card, the creditors run a credit check to verify your
credit worthiness, and how likely you will be able to pay them back. These inquiries stay on your credit report
for 2 years. On average you want to have no more than two inquiries within a 12
month period.
To read more blogs like this or if you would like any advise or help in any of these areas feel free to visit our website and sign up for our for our Newsletter. Like us onFacebook page and we will send you a free ebook on "Understanding Your Fico Score"
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