Everyone knows that when you don’t make your payments on time or you if aren’t responsible with your credit card then your score declines, but others may be doing everything that they believe will keep their score high yet still see a decrease. While making payments to your accounts on time does help your credit score, there are other factors that play into lowering your credit score and if you aren’t aware of them you may be putting your score at risk. It could be that you are accidentally doing it or just not aware of how drastic the effects of those actions are but if you avoid these five factors and figure out the ways to improve your credit score.
Your ability to make payments on your account on time is a big part of your score, however it’s not the only aspect that affects your credit score, the balance that is left behind is also a contributing element. For example, if your balance is $2,000 and you’re only making the minimum payment of $25 you’re still leaving a huge balance on your account of $1975 and this will have a negative effect on your score. Due to that you are still in a large amount of debt, and the ratio of your utilization is high, credit agencies will see it as a red flag and will lower your credit score. Along with making your payments on time your goal should be to minimize your balance as much as possible.
Being a co-signer has its benefits, you can help a close friend or relative while increasing your credit, IF the person makes the payments on time and eventually pays off the loan, but it can also have the complete opposite effect. Often when people co-sign on a loan their credit score decreases because the primary borrower either doesn’t make the payments on time or never pays off the loan. This doesn’t just impact their credit but yours as well. Even though you aren’t the primary borrower, being a co-signer means that you are responsible for the payments as well and without the primary borrower being financial responsible for the loan your credit can get dinged through their actions. The next time you’re presented with the idea of being a co-signer make sure that you are confident that the primary borrower is financially responsible enough to get the loan paid off, if you don’t think they are then for the benefit of your credit score avoid being a co-signer.
A lot of people can’t wait to pay off their credit card balance and soon afterwards they close their account thinking that this is going to help their credit, but it does the opposite. Credit agencies want to see that you have a zero balance on your credit cards and when you close your cards you’re also taking off the low utilization ratio that you have on the card. Having a paid in full on your credit line is a great way to increase your credit score.
When you have a good credit score every credit company and their sister wants to offer you a credit card, and normally with some great signing up bonuses. The temptation to get a new credit card can be high especially when you have many opportunities, but if you’re always signing up for every credit card with great rewards then you’re giving the credit agencies signals that your need for credit lines which they consider a risk and decrease your credit score.
The only way you can know that your score is dropping is if you’re monitoring it on regular basis. When you see that your score is decreasing then it may be that something is wrong, it could be that your balances are getting too high or something new was reported to the credit agencies, whatever it is, it is important to find out and fix the issue before allowing your credit to suffer too much. Checking your credit score often also helps catch fraudulent activity because if your credit score is dropping due do activity that you didn’t’ do then you can take the necessary actions to resolve the issue. Checking your credit score should be at least every six months. You are allowed one free credit report every year, and checking your credit score through credit agencies never lowers your credit score.
Keeping track of your credit card transactions monthly can be a huge benefit in making sure that everything that is being reported is accurate and it helps monitor your spending better that way if your balance does get to high you can make payments before It effects your utilization ratio. Credit card companies offer convenient ways monitor your balance daily through online banking and even apps on your smart phone. Once you pay off your credit card it may be a good idea to cut your card in half and keep your credit line open that way you can keep the zero balance and not feel tempted to put charges on the card once again. Anything that you see on your credit report that isn’t accurate or isn’t yours should be reported immediately to the credit agency.
Working hard to reach a high credit score isn’t easy that is why it’s important to be careful in even doing the smallest things because they are the same reasons for the decrease in your score. It’s normal if your score changes month to month by a couple of points, however anything that is more than 25 points is an indication that something went wrong and you should further look into it.