Why should you care about your history of paying debts and other bills? The better your credit record, the better your chances of obtaining a low-cost loan or insurance policy, renting an apartment, or qualifying for a job. Here are some common mistakes that can affect your credit history and ways to avoid these pitfalls.
Paying bills late.
One or two late payments on your loans or other obligations over a long period of time may not significantly damage your credit record, but making a habit of this can count against you. Be especially careful with payments in the months before you apply for a loan.
Not paying the minimum amount required.
This can result in additional fees and in being reported as past due.
Keeping debt levels too high.
Creditors will consider you a higher risk if you owe a lot of money on credit cards and other obligations. This can result in a higher interest rate being charged.
Owning too many credit cards.
A stack of credit cards and department store cards — even if you rarely use them or don't carry a balance on them — represents money that you could borrow. As a result, if you apply for a mortgage, a car loan or some other important loan, you may qualify for only a smaller loan amount or a loan with increased costs or fees. Two or three general-purpose cards and a few (if any) cards issued by stores or oil companies probably are enough for the average family. Consider keeping the cards you've had for a long time and handled well because they can show a long history of responsible credit use.
Not periodically checking on your credit report.
Inaccurate or missing information in your credit report could raise your borrowing costs or cause delays when you're in a rush to make a major purchase, such as a home. Many experts say you should review your credit reports at least once a year from each of the three major credit bureaus — Equifax (800-685-1111; www.equifax.com), Experian (888-397-3742, www.experian.com) and TransUnion (800-888-4213 or www.transunion.com) — but especially before you apply for a home loan or seek some other benefit where your credit report could affect the outcome.
In an important development, Congress in November 2003 passed a new law that can help you ensure the accuracy of your credit information. The law will enable you to obtain a free copy of your credit report once a year from each of the three major credit bureaus. You'll have the right to learn your credit scores, which are designed to predict how likely you are to repay a loan or make payments on time. And merchants must notify you if they plan to report negative information to a credit bureau.
