Building good credit takes time, consistency, and smart financial habits. But just as important as knowing what to do is knowing what not to do. Many people unknowingly make mistakes that can undo months—or even years—of progress. Here are the most common credit-building mistakes to avoid and how to steer clear of them.
1. Missing Payments
Nothing hurts your credit score more than late or missed payments. Since payment history makes up 35% of your score, even one late payment can drop your score significantly and remain on your credit report for up to seven years.
How to avoid this mistake:
- Set up autopay for all credit cards and loans.
- Use reminders or budgeting apps to track due dates.
- If you can’t pay in full, at least make the minimum payment on time.
2. Maxing Out Credit Cards
Using up all or most of your credit limit can damage your score. High balances increase your credit utilization ratio, which accounts for 30% of your credit score. Lenders see maxed-out cards as a sign of financial stress.
How to avoid this mistake:
- Keep utilization below 30% of your limit—ideally under 10%.
- Make multiple small payments throughout the month to keep balances low.
- Ask for a credit limit increase (and resist the temptation to overspend).
3. Closing Old Accounts
It may seem smart to close unused credit cards, but doing so can actually hurt your score. Why? Because closing accounts reduces the average length of your credit history (15% of your score) and can increase your overall utilization ratio.
How to avoid this mistake:
- Keep old accounts open, even if you use them only occasionally.
- If the card has an annual fee, ask your issuer to downgrade it to a no-fee version.
- Use older cards for small recurring charges (like a streaming subscription) and pay them off monthly to keep them active.
4. Applying for Too Much Credit Too Fast
Every time you apply for a new loan or credit card, lenders perform a hard inquiry. Too many inquiries in a short period signal desperation and can lower your score. They also reduce the average age of your accounts, which weakens your credit history.
How to avoid this mistake:
- Space out credit applications by at least six months.
- Only apply for accounts that you genuinely need.
- Use pre-qualification tools to check your chances without impacting your score.
5. Taking Payday Loans
Payday loans may seem like a quick fix for cash shortages, but they don’t build your credit score—most lenders don’t report them to credit bureaus. Worse, they often come with extremely high interest rates and fees that can trap you in a cycle of debt.
How to avoid this mistake:
- Build an emergency fund so you don’t need payday loans.
- Consider safer alternatives like a credit-builder loan or personal loan from a credit union.
- Focus on improving credit responsibly to unlock better borrowing options in the future.
Bottom Line
Avoiding these common mistakes is just as important as following the right steps to build credit. By paying on time, keeping balances low, maintaining old accounts, applying for credit strategically, and steering clear of payday loans, you’ll protect your financial reputation and ensure steady progress toward a strong credit score.
