Tuesday, July 22, 2008


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More and more credit is becoming a bigger part of our lives. Your credit score can affect your quality of life. The car you drive, what house you live in, and the jobs you get can all be affected by your credit score. As time goes on your credit score is more and more important. That's why you need to build solid credit history as soon as possible. If you are just getting started or you're rebuilding your credit score this article is very important. It will teach you the five credit mistakes made by rookies and how you can avoid them.

First Mistake-Too many credit inquiries. When you apply for a new loan, credit card, or rental agreement you allow creditors to pull your credit report. The new creditor might not be completely forthcoming but somewhere in the small print you give them permission to pull your credit. If this happens one or two time in a six month time span you have nothing to worry about. On the other hand, more than four credit inquiries in a six month period sends a red flag to the credit reporting agencies and they dock your credit. They assume you are either going to rack up all the newly acquired credit or that something is wrong because you're acting desperate.

I made this mistake personally in my college days. Between classes I noticed a table covered with sunglasses, t-shirts, and other cool items. I could pick any two items if I filled out some credit card applications. I was a little suspicious and asked if there were any strings attached like yearly fees and cancellation penalties. Nope, just fill out the five different applications and that's it. They said I could cancel the cards the second I got them. True, but applying for all five cards in one day hurt my credit.

Second Mistake-Having a swamp-like credit card. Swamps are nasty places where water collects and sits for a very long time. Credit bureaus like accounts that are more like streams then swamps. Pay more then the minimum payment and have a healthy flow with your cards. When balances sit for a long period of time it sends the wrong message. It says that you use credit because you have to, not because you want to.

Third Mistake-Maxing out any account. Maxed out credit cards indicate that you are relying on your credit to survive. Creditors label these accounts as high risk and damage your credit report in the process. Never carry a balance over 30% of your credit card limit to avoid this mistake.

Fourth Mistake-Having a lack of understanding. Knowledge is power. The more you know about your credit the better off you will be. It takes time for anyone to establish a great credit score. Sorry, there are no tricks you can do to speed up the process. Knowing your credit report early will give you valuable information to build on. The last thing anyone wants is to be denied for a loan when they need it most. Know where you stand with your credit as early as possible. If you don't know exactly where you stand get a free credit report today. You are in a great position to take positive action with your credit future.

Fifth Mistake-Opening accounts that don't report to credit bureaus. You might be surprised to find that there are some lines of credit that don't report to credit bureaus. These accounts will not report good credit history but if there's trouble they will turn your account over to collections. In other words, they will work against you but not for you. Whenever you apply for a new account ask the question "Do you report to all three credit bureaus?" If they don't apply for something else that does.

A common mistake rookies make is using friends and family for loans instead of going to a bank. Even if you're fortunate enough to get a loan from a family member you might consider getting a traditional loan from a bank. It might be more of a pain but the rewards for doing so are big. Number one, you start your own credit history. Number two, you don't have to strain any relationship you have with that person.

By avoiding these five mistakes you'll be on your way to building a great credit score.

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