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Op-Ed: 5 credit score killers that are costing you money

Your credit score can also mean the difference between a job offer or being passed over and increases in the cost of services such as auto insurance or cell phone coverage. There are ways to increase your credit score but the best defense is a good offense, and that means protecting your score proactively. Here are five things to consider.

#1 Maxing out lines of credit
Both underusing and overusing credit are problematic. Optimally, don’t use more than 30% of your credit line. That’s not on a per credit card basis, but overall. If you have five cards with a total credit line of $15,000, you should never charge more than $4,500. Using your card to take advantage of rewards programs but then paying off in full each month lets you avoid finance charges while giving you the maximum benefits. Using your credit wisely can be a balancing act.

#2 Paying bills late
Only creditors that require a credit check will auto report to credit agencies. This includes credit cards, mortgage and car loans. But utility bills or cell phones won’t typically show up unless you don’t pay and they go into collections. Once in collections, a debt will show up twice on your report – once from the original creditor and also from the collection agency. That means a double hit for one unpaid bill. And late-paid bills like credit cards can damage your score monthly if the card issuer chooses to report.

#3 Skipping out on student loans
Student loans are increasingly a problem for many consumers. More than 14% of educational debt is currently in default. Because student loans are not one large loan, but many maintained by different servicers, they represent multiple entries on your credit report. If you pay late, that means a lot of hits to your score. And if the loans go into collections, that doubles the amount of negative entries.

#4 Mishandling credit offers
You don’t want to get in over your head with debt but also want enough available lines of credit to flesh out your score. When you’re first starting out, it can be tempting to accept every credit offer that hits your mailbox. A bunch of new credit at once isn’t good for your score. But turning away good offers can also be unwise. As your score improves, you’ll get lower interest rate offers. Moving balances to lower rate cards but keeping old accounts open and with a low balance can be better.

#5 Not understanding how credit scores work
It’s important to understand how credit scores are calculated so you can manage these factors. For instance, having different types of credit can improve your score including revolving and instalment accounts. New credit accounts improve your score as do older accounts because length of credit history is a factor in score determination. The biggest component of your credit score is payment history and makes up 35% of your score. Paying on time is the best way to improve or tank your score.

If your credit score is on the borderline, you may get approvals, but only for subprime offers (i.e. high-interest financing). This means you’ll pay more than average for credit cards, car loans, mortgages and anything that comes with an APR attached. Finding ways to increase your credit score can make a real different in your costs of living and can improve your financial prospects.

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