“3 Common Mistakes Most People Make That Negatively Impact Their Finances and Credit Score”

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? 

Below are three common mistakes most people make that negatively impact their finances and credit score.  Always ask or research before you make any kind of financial decision, sometimes you may have good intentions and think you are making a wise decision, only to latter find out  you have made things worse. 

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.

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