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The Major Pitfalls of Credit Scores

By Karen Anderson
Published: Monday, November 9th, 2009

Being creditworthy is an important thing for it means that we are better able to get approval from creditors and lenders when applying for loans. Because decisions are made primarily by the analysis of our credit history, our credit report should therefore reflect our good standing. Among the credit report tips to consider is avoiding common pitfall that negatively affect our credit score.

The first pitfall is paying late. Our payment history comprises thirty-five percent or almost one third of our overall credit score. Needless to say, frequent late payments would aversely affect our credit score. Preserving our credit card score therefore entails paying our credit card bills on time.

Paying and settling bills can be a truly stressful activity that many would choose the easy way out: ignoring the bills altogether. This is even worse than paying late for as we all know; ignoring the problem does not make it go away. In fact, every month missed in our credit card payment is a month closer to having our account charged off. Paying on time is among the most basic credit report tips that we could do.

Of course, the longer it takes for us to settle our credit card bills, then the more our creditors think that we have no intention of paying them at all. This may lead them to charge off our account. The next step that our creditors may take upon charging our account off is sending it to collections. This means that they have given up in trying to collect our payments and have therefore resorted to third party debt collectors.

Among the credit report tips that should also be considered is avoiding loan defaults. A loan default means that we have not fulfilled the terms of a loan contract that we have entered. This is one of the danger signals that alert our would-be creditors to deny our application for credit.

A high credit card balance relative to our credit limit means that we have a high level of debt. Credit utilization measures our level of debt. As such, it has an inverse relationship to our credit score. This simply means that an increase in our credit utilization means a decrease in our credit score. When our credit utilization reaches 100%, this means that we have already maxed out our credit cards or that our balance has reached beyond our credit limit. Avoiding high credit card balance and maxed-out credit cards are therefore important credit report tips to be remembered.

Haphazard closing of credit cards is another pitfall that we have to avoid. When choosing what credit cards to close, old credit cards should be last. This is because long credit histories are a plus to our credit report. In fact, the length of our credit history comprises 15 percent of our credit score. We have to remember that the longer our credit histories, the better. By following these credit report tips and avoiding the common pitfalls, we could surely maintain a good credit score.

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