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Top 10 Credit Mistakes People Make That You Want to Avoid

There are numerous mistakes that can be made with your credit that can all damage it. Sometimes these mistakes will only cause a little damage but at other times it will create much more damage. This is because your credit is very fragile.

Fortunately though, whenever you know what mistakes you shouldn’t make you can actually save yourself from years of frustration and thousands of wasted dollars. While some of the mistakes on the following list have a lot to do with common sense, there are others that you may actually be surprised by.

Nevertheless, the more that you know about your credit, the better equipped you will be to protect yourself while building your credit.


1. Closing Credit Cards

Credit card on a white background

While you may not think that closing your credit cards would negatively affect your credit, it is probably the single worst thing that you could do. The only other thing that is as bad as this is missing payments. This is because one of the major factors that goes into determining your credit score is just how long your credit history actually is. So, even if you no longer want or need a particular credit card you shouldn’t close it.

Eventually the credit cards that you don’t use will fall off of your credit report anyway. This will take at least seven years though since federal law states that most items are allowed to be reported for this length of time. Even if you only use your credit card for a small amount every couple of months, you should still do so. Just make sure that you pay for it immediately. You may wonder why you would want to do this.

In Smart Money Secret, they say that the main reason is that it will actually help your credit score because part of this is determined by your utilization measurements, which means how much you use the credit that you have. So, even if you just use your older credit cards on an infrequent basis you will still be improving upon your credit score.


2. Missing Payments

Common sense would tell you that missing payments isn’t going to help your credit score any. Even so, a lot of people still tend to overlook this. Of course, the reason behind this is also common sense: the credit bureaus keep track of your credit history. Whenever you miss a payment can damage your credit score for up to seven years.

Some of the other things that will affect your credit score here include how frequently you miss payments, how recently you have missed the payment and how late the payment actually is. So, a payment that is only a week or two late probably won’t affect your credit score nearly as much as a payment that is 90 days or more late.


3. Settling Past-Due Or Collection Accounts

Settling occurs whenever a lender accepts a smaller amount that what you owe them so that they can close your account. For instance, if you owe $1,000 on a credit card that is long past due, the company may accept a payment of $500 so that they can close your file.

While this may sound like a good idea to you since it will lower your overall debt, lenders usually report this deficiency (the difference between the original amount that you owed and the settlement amount) as a negative item. This is why it is so important to maintain a 30% to 40% balance of your available credit limit.


4. Maintaining High Credit Card Balances

As was aforementioned, it is important to maintain a 30% to 40% balance of your available credit limit. The closer that you get to your available limit, the more your score will be affected, which is why it is best to keep your balance on the low end.


5. Inquiries

Your credit report is marked with an inquiry every time that you fill out a credit application and allow a lender to run your credit. Simply put, an inquiry is whenever someone asks for a copy of your credit report. While inquiries aren’t a bad thing, too many of them are because they can then damage your credit score. This is because credit bureaus have done statistical studies that show them that usually those people who have a lot of inquiries are bigger credit risks.

Therefore, it is a good idea to keep the number of inquiries down and only apply for credit whenever you really need to do so.


6. Believing That All Credit Scores Are The Same

Credit Repair Letter

Credit Repair Letter

There are several different types of credit scores available today because there are hundreds of credit bureaus in existence. One of the most common credit risk scores is the FICO (Fair Isaac Corporation). With this information in mine, you really need to know that the most common score is the one that will determine just how risky it is to extend credit to you.

The higher your credit score is, the bigger the risk you are considered to be. There are numerous websites that you can go to in order to find out what your credit score is. Regardless of which one you choose to use, it is important to make sure that you are getting the real deal. Of course, this is especially true if you will be paying for it.


7. Believing That All Credit Scores Tell The Same Thing

As was aforementioned, there are different types of credit scores and not every credit score will show that you are a credit risk. Some of the other scoring models that you should know about include:

  • Insurance Risk. Insurance companies use credit scoring to determine how likely you will be to file a claim. If you have a lower score, this means that you will have a higher premium.
  • Response Rates. The credit industry uses this to determine how likely you will be to respond to a pre-approved offer.
  • Revenue Potential. Credit card companies use this to determine how likely you will be to use their card and thus generate revenue for them.
  • Collect Ability. This is the one that is used by the collection agencies to determine how likely you will be pay what you owe.
  • Bankruptcy Potential. If this score is too high, more than likely you will not be getting credit any time soon.


8. Not Understanding Your Credit Rights

The FCRA (Federal Fair Credit Reporting Act) was enacted in order to protect you as a consumer. There is a lot to this act, which you can read about at The important points are as follows:

  • Permissible Purpose. There are only eight reasons why your credit file is permitted to be accessed. Two of the most notable reasons are: for your own report every 12 months and as a part of a legitimate business transaction, which means that you filled out an application and gave a business permission to view your credit report.
  • The Right To Dispute. According to the FCRA you have the right to dispute anything in your credit report that you feel is inaccurate, misleading, untimely or unable to be verified. There is a lot of information available that will tell you how to dispute the items on your credit report.
  • Your Right To A Free Copy Of All Three Credit Reports. The FACTA (Fair and Accurate Credit Transactions Act) is an amendment to the FCRA that allows you to get a free copy of your credit report from all three of the major credit bureaus every 12 months. You can do this by going online to or by writing to the bureaus and requesting that they send you a copy.


9. Not Knowing About The Three Credit Reports And Three Credit Scores

Most people do not realize that the three major credit bureaus (Equifax, Experian and TransUnion) are private businesses that are ran for profit and thus compete against one another.

While each of them maintains information on approximately 250 million consumers none of them share information with one another, which is why there can sometimes be found discrepancies amongst the different bureaus.

This information is important to you if you need to repair your credit because a negative item may only be found on one report instead of on all three.

10. Not Having Any Credit Or A Credit Score

There are a lot of people who choose to completely avoid credit by using nothing but cash. This really isn’t a good idea though because the American credit system has been designed to determine just how credit worthy you are.

As such, it will reflect positively upon anyone who has shown that they are able to be responsible whenever they are managing their credit. Anything that you do that detracts from this is going to bring down your score.

So, whenever you don’t use your credit at all, you are doing something that could otherwise be rectified in a more beneficial manner by simply utilizing some self-discipline and a little bit of planning too.

DIY Credit Repair Tips – Don’t Make These Silly Credit Mistakes

Looking for some tips on Do-it-yourself Credit Repair? Or maybe you’re still deciding if you want to take the D-I-Y route to better credit yet and need some more information? We’ve made list of some of the worst credit mistakes, so you don’t have to make them. Once you decide DIY credit repair is for you, check out our #1 rated DIY credit repair book, Credit Secret by Scott Hilton.


The 100 Word Statement — Don’t do it

Credit Repair Letter

Credit Repair Letter

This is a credit repair tip everyone should know. Even if you choose to believe the 100-word statement does you no harm. It’s hard to argue that it will do you any good. The 100-word statement was an addition to the consumer credit report made by the Credit Reporting Agencies (sometimes more well known by their commercial names, the big ones are Equifax, Experian, Trans Union) to help consumers who had problems on their reports.

The statement does not affect your credit score, and considering credit applications are decided almost entirely on credit scores, what’s the point? What’s worse, it is the one of the most difficult parts (if not impossible part) of a credit report to change. Let’s just say, you have some bad things on your report, and you put a 100-word statement on your account explaining it. Then through credit repair you are able to clear up the credit report errors, you’re now stuck with an account of why have problems on your credit report. And even though it’s not normal for a creditor to examine the statement, it is possible a creditor would look at it, especially for something like a home mortgage loan.


Closing Credit Card Accounts the Wrong Way

This is one most people don’t get. Not using the card. Close it right? Not so fast. Closing accounts is one of the worst things you can do if you do it the wrong way. Because most people just call up and ask it to be closed, sometimes it leaves your credit report with an account marked “Closed by Guarantor” (and makes it look like the credit card company took your card away.) Instead, make sure that you request the account be labeled “Closed by request of Customer,” it may even be advisable to send written notice, that way you have proof if you get a surprise on your credit report.

Do-it-Yourselfers don’t always know this one, and it’s just another part of the information consumers need to know to take care of their credit. Before you decide to close the account read the next free credit repair tip, for more info…


Closing Credit Card Accounts with Good Histories

You hear it again and again. Don’t use too much credit. Close any unused accounts. And if you’re in a situation where you can’t control your spending, then this may be a good tip. Only you can decide whether you think you can control yourself and your spending wisely. But in terms of improving your credit score, keeping an account with a positive payment history active and using the credit line responsibly is probably the best tip.

In most cases, account information on your credit report will remain for no longer than seven years from the Date of Last Activity or “DLA” on the account. So, once you close the account, the seven-year clock starts ticking and, unless activity resumes, the account will be gone from your credit reports, and so will all the good credit history of on-time payments. In addition, a small percentage of your credit score is calculated on the length of your credit score. It may not have a huge effect on your credit scoring but any one of those little things could mean the tipping point between you and a higher credit score. So, the longer your credit history the better.


Applying for Credit to Get the 10% Off Special

This is a great free credit repair tip that could save you a lot of money. Say, you’re at the mall and a department store offers you “10% Off Your Purchase” if you apply for a credit card with them. We can’t tell you whether it’s worth it for you to apply for the credit card (you’ll have to do the math on that), but we can tell you it’s probably not a hot idea in terms of your credit score. Here’s why. Every time you apply for credit, a “hard inquiry” goes on your credit report, and they will lower your score (at least by a few points) especially if you have been applying for a lot of credit. The good news is the effect is not permanent. And the inquiry will not show up at a ll after 24 months. T

he bad news is that your score is going to take a temporary hit, and for what? To save $15 on a new coat? It’s not worth it for small ticket items, especially if you are not going to pay the account off right away anyway, because department stores do not have competitive Annual Percentage Rates (APR). You’re better off getting the best deal you can on a regular Visa, Mastercard or Discover Card, and using the lower APR to pay it off. And if you’re thinking about applying for a home or car loan, then you need to be even more aware of the harm that something so seemingly harmless (like applying for a department store credit card) could do to your credit report.

Even a couple of points on your credit score could mean the difference between qualifying a lower interest-rate loan.


Not Checking Your Credit Report Because You Think it Will Lower Your Score

One of the best credit repair tips we can give you, and one of the worst mistakes many people make. You need to know that checking your credit report yourself will NOT negatively affect your score. There are two kinds of inquiries that show up on your credit report “Hard Inquiries” and “Soft Inquiries.” A Hard Inquiry (the kind that happens when you apply for credit) will appear on your credit report for 24 months and will negatively affect your score (especially if you have been applying for a lot of credit over a short period of time.

While a Soft Inquiry also known as a “Promotional Inquiry” (happens when you run your report yourself) and whenever a credit card company looks at your report to send you a promotional offer, like a credit card offer. Soft inquiries will not negatively affect your score. And not checking your credit report on a regular basis is just plain dangerous. It’s been estimated that more than 79% of all credit reports contain errors, yours could be one of them. Checking your credit yourself is also the one best ways to protect yourself against ID Theft.


Thinking All Late Payments are Created Equally

This is always one of our most popular free credit repair tips. It seems that a lot of people think a late payment is a late payment (no matter how late). In terms of your credit report score though a 30-day, 60-day, and 90-day payment are NOT all the same. If you know you’re going to make a late payment, a great credit tip to know is that you should still try to pay it as soon as possible. An extremely overdue payment will count more heavily against you on your credit report scoring. So don’t drag it out. Pay it as soon as you can, even if it’s only the minimum. The important thing is you pay on time, or as close to on time as you can get.


Size Doesn’t Matter

At least not when it comes to making minimum monthly payments and your credit report. While it’s not a great long-term financial strategy to only make the minimum payments on your credit cards, if know you’re going to be going through a period where you will be a little short of cash you may want to reduce your payments down to the minimum. In terms of DIY credit repair tips, it is better to reduce your payments to to the minimum monthly payment and pay them on time. The important thing for your credit report score is that you have a history of making on time monthly payments (not how large they are).


We’ve put together some of the best and most effective credit repair tips we know so that consumers just getting started with learning more about credit won’t make the mistakes we’ve seen so many other beginners make. But going through the credit repair process yourself means that you understand the Consumer Credit Laws that protect your legal rights, namely the Fair Credit Reporting Act (FCRA), the Fair Debt Collections Practices Act (FDCPA), and the newly passed FACT Act.

Understanding those laws is crucial to how successful you will be at repairing your credit. Make sure that you or someone you hire understands the laws, so that your legal credit rights will be protected. Whether you decide to repair your credit yourself or hire us to perform the service for you, the best credit tip anyone can give you is to learn the important laws that protect the rights of consumers just like you. Get more info on the consumer credit laws that protect you and your right to legal credit repair in our credit laws section. We encourage you to read the full text of these laws if you are interested in doing your own credit repair yourself.


Important Things To Consider Before You Make A Bad Credit Home Loan

Don't Be Stuck With A Bad Home LoanUnderstand that your damaged Credit Score can cost you big money in higher monthly installment payments on your home mortgage loan. With a bad credit home loan, even a couple of points on your credit report score could mean the difference between thousands of dollars. Know that this home buying guide is for informational purposes only, it is only to help inform you, not to advise you about whether to buy a home or not. If you have time, fixing your credit with something like Smart Money Secret before applying for a home loan can save you thousands of dollars.

But please understand that you may be able to get a home mortgage loan even with bad credit. Many lenders are willing to take on the risk, because it’s not without reward — they’re going to charge you very high rates.
Your credit score can be improved.

Sometimes, only a few extra points on your credit scores could save thousands of dollars.
Already paying too much? Fix your credit report, and it could help you to refinance at a lower rate, and that means you pay less for your monthly mortgage bill.

Computer with credit score application on a screen

Buying a home is easily the most expensive purchase most people will ever make in their life. Your FICO score is a primary factor in determining the amount of money you will pay for your house. Your Credit Score is determined by your credit report, so once your credit report is improved, your credit score will go up. (Your Credit Score or FICO Score, as it is called when it is determined by the Fair Isaac Company, to learn more please see our section on Credit Scoring.) The better your credit, the less you pay. This is true whether getting a home loan, a cell phone, a car loan, or signing up for credit cards. And it’s even more true when it comes to buying a home.

Fixing your credit score could equal big bucks for you and your family. Use the following charts to calculate how much your monthly mortgage payments will be for your home based on your FICO credit score. Find your score, then look to the right side of the chart to find the APR (annual percentage rate) that you will be charged, and then you can estimate what your monthly payments will be. Please note that the chart should be taken as a guideline. Each lender will have its own criteria for determining your creditworthiness. But after learning more about the high cost of buying a home with bad credit, you may decide to make your first call to a credit repair specialist instead of a real estate broker.


Buying a home with bad credit could be the worst buy you ever make, just look at the difference improving your credit score by only a few points can make. Let’s say, two families the same house right next door to each other in the same neighborhood, and let’s say they both pay the exact same selling price and get their mortgages from the same bank, let’s call them A and B. Family A will pay $414,245 but Family B will only pay $489,215. A whopping $74,970 difference! How can that happen? Very easily.

If these two houses look a lot alike, it’s because they’re identical.

The only difference is how much more buying a home costs with bad credit.

House “A”                                                          House “B”

Selling price: $200,000                                              Selling price: $200,000

Price paid at end of 30-year loan= $414,245               Price paid at end of 30-year loan= $489,215

Why would anyone pay $74,970 more for the same house? Unfortunately, people with bad credit. are doing it every day. How much more you’re going to pay will depend on how bad your credit problems are. Use the below charts to help you calculate how much more you will have to pay for a house depending on your FICO credit score.

FICO Score/Mortgage Calculator for a $150,000 30-year, fixed-rate mortgage*

FICO SCORE        —>       YOUR  APR

760 – 850    5.41% = YOUR MONTHLY PAYMENT OF $843
700 – 759    5.63% = YOUR MONTHLY PAYMENT OF $864
680 – 699    5.81% = YOUR MONTHLY PAYMENT OF $881
660 – 679    6.02% = YOUR MONTHLY PAYMENT OF $901
640 – 659    6.45% = YOUR MONTHLY PAYMENT OF $943
620 – 639    7.00% = YOUR MONTHLY PAYMENT OF $998

FICO Score/Mortgage Calculator for a $300,000 30-year, fixed-rate mortgage*


760 – 850    5.41% = YOUR MONTHLY PAYMENT OF $1,686
700 – 759    5.63% = YOUR MONTHLY PAYMENT OF $1,728
680 – 699    5.81% = YOUR MONTHLY PAYMENT OF $1,762
660 – 679    6.02% = YOUR MONTHLY PAYMENT OF $1,802
640 – 659    6.45% = YOUR MONTHLY PAYMENT OF $1,886
620 – 639    7.00% = YOUR MONTHLY PAYMENT OF $1,996