5 Credit Mistakes — And How To Fix Them

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This post is sponsored by Lexington Law Firm! Thank you! It’s companies like this that allows us to keep this website running.

The concept of credit is relatively new. The first cards were introduced in the middle of the 20th century, and it took another forty years for a consistent scoring system to develop. The FICO scoring system that many lenders use today is updated frequently. The current model, FICO score 9, is used by some lenders, while others still use FICO score 8. Mortgage lenders may reference even older models.

Because it is all so new and the rules are ever-changing, it is no wonder that many of us make mistakes as we manage our credit history. Here are five common mistakes, and how to fix them.

Mistake # 1: No Credit

Credit bureaus use data collected from credit card companies to create your credit report. If you have never had a credit card, the credit bureau doesn’t have enough information about you. They need to see at least six months of data before knowing about you as a spender.

So while you may have thought that staying away from credit cards was wise, you are actually hurting your credit score by doing so. To prove that you can responsibly borrow and pay back money, you’ll need to sign up for a credit card.

At first, you may only be able to get a secured card. This means that you have to have a certain amount of money in the bank that is designated as collateral. For a card with a 500 dollar spending limit, for example, you may be required to have 50 to 500 dollars  (depending on your situation) in the bank.

Mistake # 2: Late Payments

Your payment history is a big factor in your credit score. If you’ve gotten into the habit of making payments late, your score will suffer.

To fix this mistake, you need to address the root cause of your problem. Do you make late payments because you don’t have the cash flow to support the payment, or is it an organizational issue?

If it is a cash flow issue, consider writing out your budget so that you can manage your money wisely. Cut back where you can and work on earning more. Organizational issues are easier, but just as important, to fix.

Mistake # 3: Defaulted Student Loans

In the US, the median amount of debt reported for individuals with bachelor’s degrees was 25,000 dollars. If you don’t make scheduled loan payments, your loan is considered “in default”. Federal loans enter into this category after 270 days without payment. Defaulted loans significantly harm your credit score. Even if your payment is 30 days late, it can negatively affect your score.

What can you do about this? Reach out to your loan officer. If you have a federal loan, inquire to see if you qualify for an income driven repayment plan. For private loans, work on refinancing to create payments that you can manage.

Mistake # 4: Identity Theft

Identity theft affects millions of Americans each year. If you are a victim of identity theft, you might be struggling to fix the harm that’s been done to your score.

Instead of trying to fight the battle on your own, let a legal team do the work. Because this is such a common issue, many credit repair services include identity theft monitoring and repair. They can make calls, ensure that inaccurate items are removed from your report, and handle all of the legalities involved in getting your credit back in order.

A great place to start is by reading Lexington Law reviews, or choosing another credit repair service to research and then work with. Be sure that they are reputable and have plenty of experience in handling credit disputes.

Mistake # 5: High Balance

Do your cards carry a high balance, and you have no idea how to pay them down? This is a budgeting issue. Work on establishing a budget for yourself so that you can become financially healthy. Here are some tools to keep in your pocket:

Which mistake did you make? Just one, or a few? Use the resources and strategies listed above to confront your mistake head on. Address the problem, and stay positive. Credit scores change all the time, and if you work on it, you can see gains that will help you stay motivated. The best thing to do is learn from your mistakes, and move forward, focusing on your goals.

This post is sponsored by Lexington Law Firm! Thank you! It’s companies like this that allows us to keep this website running.