Maintaining a good credit score in the United States is essential to achieve financial stability, obtain loans with better rates and even rent a property. However, many immigrants face challenges when trying to build a solid credit history. In this special Planeja USA article, we will identify some common mistakes when building a credit score and offer tips on how to avoid them.
Not Having Credit Cards
Common Error: Avoiding credit cards for fear of accumulating debt is a common mistake. Without a credit history, it is difficult for lenders to assess your financial behavior.
How to avoid: Opening a secured credit card is a great way to start. With this type of card, you make a deposit that usually matches your credit limit. Use it regularly and pay the balance in full every month to demonstrate good financial behavior.
Use the entire card limit
Common Error: Maximizing your credit card limit can negatively affect your score. High credit utilization is seen as a sign of risk by creditors.
How to avoid: Try to keep your credit utilization below 30% of the available limit. If possible, pay the balance in full monthly. If you need to use more credit, consider requesting a limit increase or getting another card.
Pay Late Bills
Common Error: Delaying payments is one of the most damaging mistakes for your credit score. A late payment can stay on your credit report for up to seven years.
How to avoid: Set payment reminders or set up automatic payments to ensure all your bills are paid on time. If you are experiencing financial difficulties, contact your creditors to discuss options before delaying payments.
Close Old Accounts
Common Error: Closing old credit card accounts can lower the average age of your credit history, which can negatively impact your score.
How to avoid: Keep old accounts open, especially if they don't have annual fees or high fees. If you need to close an account, choose the one with the lowest age or the highest rates.
Not Monitoring Your Credit Report
Common Error: Many people don't regularly check their credit report, missing potential errors or fraudulent activity.
How to avoid: Request your free credit report once a year from each of the three major credit bureaus (Equifax, Experian and TransUnion) through AnnualCreditReport.com. Check for errors and dispute any incorrect information immediately.
Apply for a Lot of Credit in a Short Time
Common Error: Making multiple credit applications in a short period can be interpreted as financial desperation, which can reduce your credit score.
How to avoid: Plan your credit applications carefully. Limit yourself to opening new credit accounts only when necessary and sparingly. Each hard inquiry remains in your report for two years, but its impact diminishes over time.
Ignore Credit Diversity
Common Error: Having only one type of credit may not help demonstrate your ability to manage different types of debt.
How to avoid: If possible, diversify your credit types, including a mix of credit cards, student loans, car loans, etc. However, don't take on unnecessary debt just to diversify your credit.
Building a good credit score is a process that requires time, discipline and knowledge. Avoiding these common mistakes and following the best practices mentioned above can significantly help improve your credit history. If you need additional guidance, Planeja USA is here to help with specialized services in financial planning and credit building for immigrants. Contact us to start your financial journey on the right foot in the United States.
