We all make mistakes and have regrets — those extra pieces of pie over Thanksgiving come to mind! — however, some regrets last longer than others. Credit mistakes can make you regret the error of your ways for years to come. Avoid these common credit mistakes and you’ll have one less area of regret in your life. Plus, you can start 2016 with a fresh start for your finances.
1. Opening a New Account Before Closing on Your Mortgage
One of the most common mistakes new home loan borrowers make with their credit is loading up their revolving credit accounts or opening new ones to buy “stuff” for the house once their loan has been approved but not closed. What many borrowers don’t know is that just before closing the loan, many lenders will run a new credit report, and having new debt could throw off your debt-to-income ratio, rendering you ineligible for the mortgage. A new account and credit inquiry can also lower your credit score.
2. Paying a Bill More Than 30 Days Late
Paying your bills late is one of the most common, and preventable, ways to lower your credit score. We’ve all been in a cash crunch or just plain forgot, but when it comes down to it, paying bills late is likely a lack of organization or planning. If you regularly pay bills late, think about why that is — is it poor cash flow planning or procrastination? Use technology to automatically pay bills online and on time. Plan your cash flow better using online budgeting tools or good old-fashioned pencil and paper. Whatever it takes, make sure you pay on time, every time.
3. Ignoring a Collection Letter
Many of us, when faced with a collection letter, like to ignore it. It sometimes feels stressful, especially if you feel you cannot pay it. Please make sure you open a collection letter right away. Even if you can’t pay it immediately, it gives you the information you need to verify the debt is real and who to contact if and when you can pay the bill.
4. Closing an Account
It’s a great idea to reduce your debt load, but when you pay off a card, leaving the account open is key to keeping a good credit score. Closing the account could ding your credit because it lowers your total credit available, thereby increasing your percentage of credit in use and dropping your score. There are a few exceptions to this rule, like if your credit card has an annual fee that is no longer worth it. (There are plenty of no-annual-fee credit card options out there for you.)
5. Maxing Out Your Credit Card
Maxing out your credit cards can leave you with so many regrets. First, having maxed out cards usually signals a cash flow and spending problem, which needs to be addressed first. Second, remember that with higher balances become bigger payments, which can strain already tight budgets. Finally, using more than 30% of your available credit will decrease your credit score.
If you’ve made these mistakes in the past, their effects can take some time to fade. However, the more time between you and your mistakes, the higher your credit score will be, so start today to make better decisions — and live a life without regrets. You can see where your credit scores stand for free every month on Credit.com.
This article originally appeared on Credit.com and was written by Jeanne Kelly.