Credit Part 3 of 4: Credit Pitfalls

Everyone hits an occasional rough patch in their financial life. Unfortunately, some situations will hurt your credit score worse than others. Here are five common pitfalls that will negatively affect your credit.

Missed payments, also called delinquencies, are probably the most common black marks to appear on credit reports. These can happen for a number of reasons: you forgot to schedule a payment before you went out of town, you moved and forgot to give your new address to your creditor, or your finances were just too tight that month. Whatever the reason behind them, missed payments are likely to be reported by your creditor to the credit reporting agencies (especially if you didn’t contact your creditor to explain yourself). A delinquency can stay on your credit report for up to seven years. But don’t worry, the further in the past a delinquency is, the less impact it has on your credit score.

Too much debt can also lower your credit rating. Lenders review your total level of debt compared to your total amount of available credit. If that ratio is out of balance (for instance, if your credit cards are almost maxed out), your credit score will suffer. Keep your credit card balances well below your credit card limits for optimal financial health.

Applying for lots of new credit at once can also damage your credit. The number of applications you make for credit and loans is recorded on your credit report in the form of inquiries. A lot of inquiries in a short period of time can signify that you are desperate for new lines of credit and may reflect negatively on your credit score. It’s okay to apply for new accounts when you need them, just limit your applications to those cards and loans you have researched and truly need.

Public records are never good to have included on your credit report. Bankruptcies, tax liens, and court judgments all fall into this category. If you have one or more of these negative items listed on your report, you’ve probably noticed a significant drop in your credit score. While these records are damaging, they won’t stay on your credit report forever. According to the Fair Credit Reporting Act, public records must drop off of your report within seven years. If you have public records listed that are more than seven years old, you can file a dispute with the credit reporting agencies.