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Common Credit Traps to Avoid: Part Two

Last week, we discussed four common credit traps good people fall into. Now let’s look at four more:

  1. Applying for every credit card. So, you stroll into a store and the clerk says, “Hey, we’ll give you 20% off today if you apply for this card…and this card…and this card…” Pretty soon, you have all these credit pulls. To a creditor, it looks like you’re expanding your borrowing, and they’ll start shouting, “Code red!” So, stop applying for so much credit.
  2. Expecting magic when it comes to correcting your credit problems. Your history is your history. You can’t trick or fool people. You must be realistic. Cleaning up your credit history takes time. It also takes acceptance that you put yourself in this position.
  3. Closing accounts when they’re paid as agreed upon. Believe it or not, it isn’t good to close an account that’s already open and being paid as agreed.
  4. Remembering to have written agreements in place with collection companies and creditors. It’s unfortunate, but a lot of these “baddies” are not always the most upstanding individuals. So, play it safe, and put everything in writing.

By avoiding these common traps, you’ll prevent a lot of credit issues.

Ready to learn more about improving your credit score and apply for a home loan? Download our free Home Mortgage Success worksheet. 

Credit Building Tips

If you dream of owning a home someday, then check out these tips on how to build up your credit score!

 

Common Credit Traps to Avoid: Part 1

Now that you’ve gained a decent grip on what credit is and how it affects the mortgage application process, let’s dig deeper.

Here are four common credit traps good people fall into:

  1. Keeping credit card balances too high compared to the amount of credit available. For example, if you have a $1,000 credit card with a $900 balance, FICO will think you have financial issues. Not good! Instead, try and keep your balance at $300 (or 30%). It’s safer, smarter, and—from an outsider’s perspective—financially healthier.
  2. Paying bills late.
  3. Thinking credit is out of reach. Guess what? Even if you don’t have any credit, you can still get credit. You just have to work for it.
  4. Cosigning for others. It’s tempting to help a friend or loved one by cosigning a loan for them, but it has a significant impact on your credit. If they pay late (or fail to pay completely), it’ll hurt their and your credit score.

Look for next week’s post with part two of common credit traps!

Ready to take the first step to improving your credit and buying a home? Download our free Home Mortgage Success worksheet. 

Credit Pitfalls: Paying off credit cards

One of the biggest credit pitfalls you might fall is closing accounts when they’re paid as agreed upon. Believe it or not, it isn’t good to close an account that’s already open and being paid as agreed.

For example, Jack has five cards, each with a $500 balance. However, only one is being used. Creditors will say, “Okay, he has $2,500 available, but he’s only using $500. That means his credit usage is good.” If Jack closes the four cards he isn’t using, creditors will say, “He has one card, and he owes $500. His credit usage stinks!”

 

Want to learn about other pitfalls and credit strategies? Go to smartwithdebt.com.

Credit Pitfall: High balance on a small credit card

One of the biggest credit pitfalls people fall into is when they have a high balance on a small credit card. For example:

You have a $500 credit card and charge $400 on it. When creditors see you’re using 80% of your available credit, they mark you as HIGH risk. Now, let’s say you have a $1,000 credit card and charge $400 to it. Guess what? You’re no longer a risk because you’re only using 40% of your credit instead of 80%. To creditors, this means you’re a responsible, savvy, frugal adult.

Go you!

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