Credit mistakes that will cost you a loan.

Rebuilding Your Credit For A Loan? – Avoid These Mistakes

Looking to take out an important loan but have bad credit? Rebuilding your credit may not be as difficult as you think, but you need to avoid some common mistakes. This article has a few things that you should not do when fixing your credit. Avoid them and improve your chances of securing that loan.

Some loans in life are extremely important to get the best deal on. With high dollar installment loans such as automobile loans or home mortgages, even a fraction of a percent in interest can make a very big deal. If you have bad credit and have been trying to secure a loan that you can afford, you probably completely understand.

Building good credit or rebuilding bad credit is not as hard as people often think. That being said, the road to good credit has a lot of potholes. Avoid making some common mistakes and you will find the drive is a lot easier. To this end, here are some common credit building mistakes that you should avoid.

Not Monitoring Your Credit File

You need to constantly be monitoring your credit report, with all three bureaus. Experian has a great free service that allows you to monitor your Experian report and another paid service that will pull all three reports. If you are actively trying to build or rebuild your credit it may be worthwhile to splurge on the paid version.

Actively monitoring your credit will do a number of things for you. It will allow you to spot and dispute inaccurate information and it will help you stay motivated. As you watch your score start to increase little by little, you will get addicted. That will help you want to keep making the good credit decisions that will lead you to your goal.

Closing Paid Off Accounts

It is very likely that a big problem with your credit is over utilization of your credit cards. You have a number of cards that are probably completely maxed out. This is a difficult situation to get out of and many people decide that once they pay off a card, they will simply close it. In that way, they will be less likely to find themselves in the same situation.

While the logic of doing this is sound, there is a problem. Closing credit card accounts will actually hurt your credit in several ways. Closing these accounts will lower your average age of credit and it will increase your credit utilization. If you have 2 thousand dollar credit cards that are maxed out, you have 100 percent utilization. If you pay off one of those cards and then close it, you still have 100 percent utilization. Keep the card open and it drops to 50 percent.

Applying For Too Much Credit

Inquiries can have a negative effect on your credit, we all know that. Another problem with applying for too many new accounts at once though is that it will make you look risky in the eyes of lenders. Opening multiple accounts in a short time span make you look like you are struggling financially.

It can be beneficial to open a new credit account however. If it is a revolving account, it can lower your overall credit utilization. An installment account can also increase the diversity in your credit profile. Both good things, but move slowly.

Not Building An Emergency Savings

For most people, rebuilding credit is all about paying down credit card debt. To do this as quickly as possible, it may be tempting to spend every extra dollar on this debt and put saving money on the back burner.

The problem with this is that emergencies can and still will happen. If you have an emergency and do not have the savings to cover it, you could wind up with a 30 day or even a 60 day late payment. That could seriously damage your credit and make it a tougher battle to eventually get the loan that you need.

Let’s Sum It Up

Rebuilding or building credit is really not that difficult a task. Your credit score, after all, is a simple mathematical equation. It takes into account on time bill pay, amount of credit used and age of credit history among a few other things. Just be sure to pay your bills on time and get those credit card balances down. Do that, while avoiding the mistakes above and you will get the credit rating you desire and will be able to secure any loan that you need.

Posted by
James

James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.