It has been seen that there are some mistakes which can lead to very poor credit scores and so it important to understand them and learn to avoid them. Even though most credit score errors can be repaired and rectified, there are some which cannot be undone. These are the errors that can take a lifetime to repair and this could be very bad for your financial career.
Understanding your credit scores and reports
You should remember that credit reports are based on your payment history. This payment history is based on various considerations and these include default payments, type of loans taken, number of loans, late fines and other similar details. So your credit reports and scores are going to include all these details. Your credit scores are numerical expressions that range from 300 to 850 and are computed on the basis of the credit reports. Poor credit scores mean loss of better interest loans and even employment in some cases.
Some of the mistakes that you should always avoid in this reference include
1. Co-signing any loan with friends or even family
It has been seen that co-signing loans with friends and family members can reflect badly on your credit scores. If the other co-signer does not make payments on time or defaults the loan, then this poor act would also show on your credit report. Since you have co-signed this loan, then even your credit scores and reports are going to get affected.
2. Closing good credit card accounts
Most people start closing their older accounts when they have financial problems. But remember that if you close a good credit card account, then it is going to reflect poorly on your credit report. The accounts, which have good payment histories and details should not be closed, but should be active to reflect a better credit score.
3. Not keeping track of your credit reports
Even the credit reporting agencies can make errors and hence not checking your credit scores and credit reports increases these risks. So if you want to eliminate all risks from your credit reports, then you should keep a track of your credit reports and scores.
4. Owning credit cards with high balances
Consumers who own high balance credit card accounts can make their credit scores worse. According to FICO, the balance on the credit score should not be more than 30%, of the entire credit limit because lower balances mean higher scores.
5. Frivolous expenses
Avoid frivolous expenditures and also keep a track of your spending habits. If these are not controlled then your credit scores cannot improve and there would be no savings also.
6. Refinancing debt consolidation loans
You should ensure that you donít refinance your debt consolidation loan because it has been taken to get rid of debts in the first place. A refinance here would imply that your credit scores would get worse and your new loans would only lead to higher debts and interest rates.
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There are great credit repair techniques that you should put to use in your quest for a new financial life .
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