Yahoo Finance 5 Things To Stop Doing Now If Your Credit Score Is Below 700, According to Experts
Your credit score primarily determines the interest rate you get when you apply for a loan or when shopping for a vehicle or a home mortgage. According to recent data from CNN, a lower credit score could cost you significant money when trying to get a car loan.
A credit score of around 550 would come with a monthly payment of $667 for a new vehicle worth $30,000 at a five-year loan rate of 12%. That same vehicle purchase would come with a monthly payment of $580 if you had a credit score of 780 since you would get an interest rate of 6%. While this may not seem like a major difference at first glance, a lower credit score would cost you $5,241 more in interest over the course of the loan.
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We will examine how you can raise your credit score to over 700 and eventually reach 800, which is considered excellent. Here are five things you should stop doing right now if your credit score is below 700 and you want to raise it to be considered excellent.
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Missing Your Payments
“Payment history is the most important factor on your credit report, making up 35% of your score,” said Gabe Kahn, the director of credit at Arro.”To get a score above 700, it’s really important to have a good payment history. Missed payments can stay on your report for seven years, and too many make it difficult to raise your score above 700, even if you’re paying off most of your loans.”
People’s biggest credit mistakes often involve missing payments. While this may not seem like a big deal at the moment, it accounts for the largest portion of a credit score.
Kahn elaborated, “The most important factor contributing to your credit score can be difficult to change and can only be improved by consistently making payments for a long time.”
The harsh reality is that you can’t improve your credit until you consistently make all of your payments on time. There’s no way to accelerate this process and you have to remain diligent about your payments.
“Automating payments for at least the minimum balance due can guard against late payments, and you might see an immediate uptick in your score,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com.
You want to do whatever you can to stop missing payments so that you can focus on building exceptional credit.
Carrying a Balance
“Your credit utilization makes up 30% of your credit score and is the second most important factor on your credit report,” Kahn said. “Paying off your credit cards, if you have high balances, can be the best way to rapidly increase your score by decreasing your utilization.”
While you may be paying the minimum on credit cards to pay down debt, this could hurt you because if you want to improve your credit score, you must stop carrying a balance.
According to the Consumer Financial Protection Bureau, paying off your balance every month will help you boost your credit score. You should use no more than 30% of the total credit available to you.
“High utilization ratios can be viewed as evidence that you’re overly reliant on credit and financially unstable,” Kullberg said.
Even though making payments on time can help your credit score, you don’t want to drop it by adding too much credit. If you want an excellent score, you want to ensure that your credit utilization remains fairly low.
Applying For New Credit Cards
Experian warns against opening new credit accounts because each application could lead to a hard inquiry, hurting your score slightly. While you can’t always avoid this since you’ll eventually want to apply for a loan, you want to think twice before opening up a random credit card that you don’t really need.
“You don’t want to make too many credit applications at once,” Kullberg said. “Each can lead to a ‘hard’ inquiry on your credit report that can drop your number for a period of time. All those inquiries are a sign of financial distress, and lenders don’t like that. “
You may want to improve your credit by applying for more credit types, but you don’t want to make the mistake of putting out too many applications at once.
Ignoring Mistakes on Your Credit Report
You need to stop ignoring your credit report and any potential mistakes that could be on it. Even though it may feel draining to review your finances constantly, you don’t want to miss out on major mistakes that could hurt your credit score.
“The most important thing to do is to look at your credit factors through a number of free services available and see why your score changed,” Kahn said. “Make sure that there aren’t any incorrect accounts or missed payments on your account. If you find a mistake, you should handle that immediately by contacting the issuer or filing a dispute with the credit bureau.”
Equifax suggests reviewing your credit report from all three nationwide consumer reporting agencies as a wise first step to improving your credit score. If you want to improve your credit, you’ll want to know which areas need to be addressed specifically.
“Check the report for errors and dispute inaccuracies right away,” Kullberg said. “Keeping it clean will lift your score not only by correcting mistakes that are weighing down it but also by preventing identity theft.”
You want to ensure there’s no inaccurate information or any signs of fraud. You also want to determine if any unpaid balances have gone to collections.
Closing Credit Cards
If you just paid off a credit card balance, it can be tempting to close this account down. Equifax warns that you should avoid closing any old accounts because keeping these open can improve your length of credit history. Since your credit history accounts for 15% of your credit score, you’ll want to keep your older accounts active, so you must stop closing credit accounts.
“Many people close credit cards when they pay them off, but this can be a mistake for your score since having a longer trade history improves your score,” Kahn said. “Try to keep cards open, especially if they don’t have an annual fee, and this will increase your score over time.”
Just because you paid off a balance doesn’t mean you should close the credit account. You want to build your credit history by keeping those accounts open longer.
The average credit score in 2023 in the U.S. was 715, so there’s no shame in being around this number. However, you may want to make improvements if your credit score is around 700, so you can reach the 800 level. A higher credit score will lead to favorable loan terms which can save you money in the long run.
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