People with poor credit make these three credit mistakes

Your credit score reveals a great deal about how you manage your money. A higher score indicates that you pay your bills on time, use a variety of credit products, have some years of credit product experience, and do not max out your credit cards. A low credit score suggests that you do not always practice good credit habits.

A low credit score can also lead to certain credit mistakes, creating a catch-22 situation that makes it difficult to raise your score.

Credit Sesame recently analyzed data for our more than 8 million members to identify the most common credit errors made by people with bad credit. We discovered that people with low credit scores frequently make these three credit mistakes.

Mistake #1: They use an excessive amount of their available credit.

Your credit utilization ratio accounts for 30% of your credit score. That’s a fancy term for the amount of revolving debt you have in comparison to the amount of credit you have available to you. Your utilization is 50% if you have a $250 balance on a card with a $500 limit. Utilization is calculated for each card as well as the total.

When your credit card balances are close to or at their limits, lenders get the wrong impression about how responsible you are with credit.

We discovered that the average utilization ratio for members with credit scores of 500 or lower is 73% when we dug into the Credit Sesame member data.

Members with credit scores of 750 or higher, on the other hand, have an average utilization ratio of only 9%.

The average credit card balance was $2,272 for those with scores of 500 or lower and $2,464 for those with scores of 750 or higher, but there was a significant difference in the average credit limit.

The average credit limit for those with poor credit was $3,098. The average limit for those with excellent scores was $27,882.

We also discovered that 22% of consumers with credit scores of 750 or higher have no credit card debt, whereas only 3% of members with scores of 500 or lower can say the same.

People with low credit scores are more likely to rely on credit and exhaust their available credit limit.

That is a major reason they are not approved for higher limits.

Mistake #2: They continue to pay their bills late.

Your payment history is even more important to your credit score. Payment history accounts for 35% of your credit score, and late payments can have a negative impact on your credit score. 11% of debt accounts are currently delinquent among members with poor credit scores (at least 30 days late).

The delinquency rate for those with high scores is significantly lower, at 0.18%.

Given the importance of payment history to your credit score, the solution for people with bad credit is obvious:

Make it a habit to pay your bills on time, every month.

Late payments can stay on your credit report for seven years, but they start to fade after the first two years. While timely payments do not automatically erase previous late payments, a positive payment history can help to improve a low credit score over time.

Mistake #3: They have negative social media accounts.

Derogatory information, such as collection accounts, charge-offs, tax liens, debt settlement arrangements, foreclosure, or bankruptcy, can prevent you from achieving a higher credit score.

59% of all open accounts are marked as derogatory among Credit Sesame members with poor credit scores.

More than half of the accounts on these people’s credit reports have some kind of negative mark on them.

Derogatory marks were found on less than 1% of accounts belonging to people with credit scores of 750 or higher.

Derogatory marks, like late payments, can stay on your credit report for seven years.

If you believe you have black marks on your credit that are incorrect or erroneous, you have the right to dispute them with the credit bureau that is reporting the information. If your complaint is valid, the derogatory information must be corrected or removed by law. If the information is correct, you could contact the creditor directly and request that it be removed from your credit report. This is not always successful.

Allow Credit Sesame to assist you in improving your credit score.

If your credit score isn’t as good as you’d like it to be, you can get back on track with the right tools. You can monitor your credit score and view your free credit report card with a free Credit Sesame membership to learn which factors are helping or hurting your score the most. You can then learn how to avoid the credit mistakes that are lowering your score.