What Are the Most Common Credit Building Mistakes?

Want to build a strong credit score and become a more appealing borrower to lenders? If so, you need to exhibit positive financial behavior over time and avoid some common credit mistakes. 

Missed payments, applying for too many accounts at once, and other small mistakes can have long-term effects on your score. The good news is that once you understand what common credit mistakes to look out for, you can avoid them and focus on habits that strengthen your profile over time. Here’s what you need to know. 

What are the most common credit-building mistakes?

The credit-building mistakes you need to be wary of include the following: 

Missing payments

Most credit scoring models weigh your payment history as the most important financial behavior. Even one late payment can drop your score and stay on your report for years. That’s because it makes you appear less reliable to borrowers. When someone lends you money, they want to know that you are going to pay them back on time and in full. 

If you run into some financial troubles and will be late on a payment, reach out to the lender and ask about a payment plan. This can minimize the impact on your credit score. 

Carrying high credit card balances 

Credit scoring models also consider your individual and cumulative credit card balances. This is known as your utilization rate. 

Let’s say you have $10,000 in cumulative credit card limits. If you have $3,000 in balances, your utilization rate is around 30%, which is good for your score. However, if your rate is 70% or higher, it’s going to lower your score. 

Applying for too many accounts at once

Sometimes, consumers may try opening new credit accounts to reduce their utilization rate. While a new credit card will reflect on the utilization rate, the hard inquiry will lower your score. The better approach is to responsibly manage the accounts you already have. 

Closing old credit accounts

The age of your credit accounts also impacts your score. If you have older accounts that are well-maintained, it demonstrates stability. Therefore, you should avoid closing old credit accounts. If you pay off a card and don’t want to rack up a new balance, consider locking it or putting it away instead. 

Ignoring your report

Your credit report contains valuable information and can help you better understand your financial behavior. You are entitled to one free report every 12 months from each bureau. Review your report and look for errors or delinquent accounts that you can resolve. 

Only making minimum payments 

Making the minimum payment will have a relatively low impact on your score, especially if you have any high-interest credit cards. If possible, pay extra toward one or two interest-bearing accounts so you can reduce your balance sooner. 

What habits help avoid these mistakes?

You can avoid most common credit mistakes by adopting some positive financial behaviors, such as:

Pay your bills on time

The best thing you can do to maintain a high score is to pay all of your bills on time. No matter how small or large a bill is, you need to make sure it gets paid on or before the due date. Otherwise, the lender is going to report you to the credit bureaus. You can also rack up late fees that make it harder to keep up with your balance. 

Keep balances low

Keeping your credit balances low will reduce your monthly payments and decrease your utilization rate. The credit scoring models consider both factors when calculating your score. If you have low balances, it's a sign that you are living within your means and are financially responsible. 

Monitor your credit regularly 

You are entitled to one free credit report from each bureau every 12 months. Take advantage of this opportunity to review the information on your reports and check for discrepancies. You can also sign up for a free credit monitoring app so you are notified anytime there is a change to your score. 

How to build credit effectively 

Here are a few more tips for building your credit profile and strengthening your score:

• Establish a tradeline, which is an account reported to a credit bureau
• Manage all of your accounts responsibly
• Pay on time
• Sign up for Kikoff to report on-time rent payments

You don’t have to run a credit check to establish a new tradeline. With tools like Kikoff, you can report your rent and utility payments to the credit bureaus. Over time, this positive activity will help strengthen your score. 

Conclusion

Whether you want help avoiding credit-building mistakes or need to bounce back after a financial rough patch, Kikoff can help. 

You can create an account for free, without any hard inquiries. Additionally, Kikoff offers free dispute letter generation tools and reporting services so you can take credit for on-time rent payments. Build credit responsibly with Kikoff’s plans.