I previously wrote about mistakes people make with their credit when they are trying to increase their credit score. There are some very basic things you can do that most people think are helping them, but really are not helping at all. Here are 5 more mistakes people make with their credit.
1. Requesting a credit limit reduction.
You may believe that you have too much credit and that you are better off with a credit limit reduction for existing credit cards. In fact, the only significant effect a limit reduction has on your credit score is a negative effect on your debt ratio. Do not request a reduction from your creditors.
2. Utilizing the first credit counseling service you hear about.
Most credit counseling services cannot advise you all of your options, such as bankruptcy. And, quite often, the ones that advertise the most are the ones that you should avoid. Use the FTC’s advice (http://www.ftc.gov/bcp/conline/pubs/credit/fiscal.htm) and find a reputable credit counseling service in your area. If you are going to use one, call several of them and ask the questions from the FTC page to find ones that seem legitimate, then check with the Better Business Bureau before moving forward. Then call an attorney to find out the rest of your rights before you hire anyone! Let me say that again: talk to an attorney BEFORE you hire a credit counseling service.
3. Declaring bankruptcy.
Many people go forward with bankruptcy because they believe it is the only way out. Instead of taking such a drastic measure, seek counseling first and make sure to consider all of your options, including negotiations with your creditors. Bankruptcy may work for you and it may be the best option, but know all of your options before you make a decision.
4. Practicing credit card arbitrage.
This can seriously damage your credit score if you do not know what you are doing. Stay away unless you know exactly what you are doing. One mistake and your credit score could easily be demolished. By the way, if you do not know what this is, do not even bother reading about it!
5. Never checking your credit report.
Most people who behave well with their credit just assume that their credit is fine, but sometimes incorrect things can show up on your report. Visit http://www.annualcreditreport.com/ to get a free report once per year. You may catch mistakes or even identity theft. If you do this right, you end up with 3 credit reports during the year and it costs you nothing. On January 1, order one from Experian. On May 1, order one from Trans Union. On September 1, order one from Equifax. Then you can monitor your credit report throughout the year!
Your credit score is important. Not only does it affect your interest rates, your ability to buy a home or car, but it can also affect things like your insurance. Know what the consequence of your decision is before you make it. If you are unsure about the consequence, talk to an attorney.