3. Maxing out credit cards: Maxing out your credit cards is a warning sign that you aren't dealing with your credit well and hurts you in the debt-to-credit ratio. If you have $2,000 in credit card debt, your credit score will be better if you have several cards with the $2,000 in debt spread among them than all the debt on a single card with a $2,000 limit. While this is better, you don't want to open a lot of credit cards in a short period of time to accomplish this. Applying for a lot of credit in a short period indicates that you may be having financial troubles and will affect the 10% of the score that looks at new credit.
4. Avoiding all credit cards: Many people try to avoid credit card pitfalls by paying for everything in cash. The problem is that by doing so, they end up with no credit history -- and no credit score is the same as having a lousy credit score. Since it is likely that there will be a time when you need to borrow money -- such as for a home mortgage -- it is best to keep at least one credit card and make a purchase every now and then on it to keep your credit score active.
5. Not checking your credit report: If you have not checked your credit report, you may be surprised at what is in there. According to a U.S. Public Interest Research Group study a few years ago, 79% of all credit reports contained some type of error. These errors can make a big difference on your credit score, so you should check your credit report from all three credit agencies on a yearly basis to make sure that all the information is accurate. You can do so at Annual Credit Report (do not use freecreditreport.com, which is anything but free). In addition to making sure your credit information is accurate, checking your reports on a yearly basis will also help you detect possible identity theft issues.
