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Simple Mistakes that Affect Your Credit
Jul 16, 2004

To a lender or merchant your credit score is the barometer of financial health and credit-worthiness. Pay close attention to simple mistakes that can lower your credit score and reduce your loan eligibility.The FDIC Consumer News has compiled the following list of common mistakes that can significantly affect your credit history and credit score.


1. Paying bills late.

One of the biggest factors in the determination of your credit score is your past payment history. While one or two late payments on your mortgage, credit card or other important obligations over a long period of time may not significantly damage your credit record, if at all, making a habit of this can count against you.

Solution: Consistently pay your bills on time because this indicates you're a responsible money manager and likely to take your future commitments (such as a loan) seriously. Be especially careful with payments in the months before you apply for a loan, because lenders put more emphasis on your recent payment history.

2. Not paying the minimum amount required.

"If you don't make at least the minimum payment on your credit card or other bills, your creditors will eventually report your account as past due, and that's a bad mark on your credit history," says Janet Kincaid, a Senior Consumer Affairs Officer with the FDIC. "Not only that, but paying less than the minimum can result in late fees and additional interest charges, which can add up quickly." Consistently pay your bills on time because this indicates you're a responsible money manager and likely to take your future commitments (such as a loan) seriously.

Solution: Make the minimum payment to avoid negative reports. Pay more than the minimum to reduce interest charges and improve you credit score.

3. Keeping debt levels too high.

Potential creditors will be concerned if there are indications you already owe a lot of money on credit cards and other obligations because additional debt could stretch your ability to repay. One way creditors evaluate whether to approve a loan or charge a higher interest rate (which is done to compensate for higher risk) is to look at how much you owe compared to your income. Creditors also consider how much of your credit card limit you typically use. If you are "maxing out" your credit cards or otherwise keeping a high balance in relation to your credit limit, a lender could question your ability to make payments on additional debt.

Solution: Different lenders and credit scoring services may use different calculations when evaluating you

Related Article: Your Credit is Your Financial Reputation >>