Credit Mistakes that May Be Costing You Money
Credit Mistakes to Avoid
When you accept a credit card offer, it seems very easy to maintain a flawless credit profile initially. But it does not take long before certain credit mistakes cause your scores to dip. In fact, you may unintentionally commit many credit mistakes that could cost you money and mar your clean profile.
With so many factors weighing in on your credit score, how can you manage to balance it all? With so many complications of scores and credit profiles, how can you navigate a credit journey easily? We know it’s a sore topic and many may be healing from deep wounds that credit mistakes may have caused.
Why is Credit Profile Important?
In truth, a person’s credit profile tends and their scores tend to have a vast impact on several aspects of their lives. These include credit card applications, interest rates, and eligibility for certain job opportunities, background checks, rents approvals, and security clearance levels.
In fact, your credit history not only impacts your own security clearance levels but also your family members. Hence, it is all the more important to play your cards very safely and wisely refrain from committing credit mistakes.
Below, we will outline a number of credit mistakes people commonly commit. It will serve as a guide to help you refrain from those and not lose precious money.
1. Minimum Payments- Not a Good Option
We have seen many credit card holders opting for the minimum payment amount when paying off their monthly credit cards. Perhaps you’re silently admitting to being guilty of this too. But the truth is that minimum payments are not the convenient option you perceive them to be.
In fact, it ends up costing you BIG time in the long run. By making minimum monthly payments on your credit card, you unintentionally stretch the amount of time you will take to pay the debt off. Moreover, the smaller payments will do nothing more than creating a dent in your principal balance.
Do you know the outcome of this approach? Your total debt will keep accruing interest and you will forever be off the debt. Hence, when you’re swiping your card for a bigger purchase, do construct a plan for paying off your debt. Make it your goal to not carry a month-to-month outstanding balance.
2. Falling for the Month-to-Month Myth
There’s a myth that says having a month-to-month balance does wonder for your credit score. Honestly, do you really believe having a month-end balance would improve your credit profile? We wonder how people can fall for the myth but sadly, statistics tell us that nearly 22% of Americans still believe in this flawed logic.
Fact is, carrying a month-to-month balance is a rip-off, costing you a lot of precious money while also damaging your credit score. Do you know what happens because of a month-end balance? It gives you a higher rate of credit utilization, meaning the amount of debt against your available credit.
You could ask any banking expert and they’d tell you that the lower one’s utilization rate is, the more beneficial it is for them. Now let’s come to the costly part: having a month-end balance also means an expensive payment in the form of interest charges.
We agree with those who say that a cash-back card is a handy tool for saving some money when it comes to your daily expenditure. However, we also know for a fact that such kinds of savings do nothing for a person’s welfare if she/she ends up with interest payments.
3. Failure to Take Advantage of the Yearly Free Credit Reports
Regardless of which credit report company it may be, every single one is bound by federal law to provide their customers a free copy of their yearly credit report. The failure to take advantage of the free annual credit reports is among the list of credit mistakes people commonly commit.
Perhaps it may be due to the awareness of many of the three credit reporting companies that possess a report of every customer’s credit profile. Moreover, customers even have the liberty to request a copy of their report either at the same time or individually.
We recommend obtaining a copy of your report from each company with a gap spaced evenly over a year. Doing so will help you review your credit records so that you can catch any attempts of identity theft, derogatory accounts, or misstated information.
However, note that the reports will not provide information on your credit scores, which is alright considering the other vital information. Also, all the other information can greatly affect one’s overall credit profile.
It will even impact your score and if you don’t review those, you will end up losing more money due to poor credit history. The latter results in increasing your interest rates or forces you to settle for less beneficial credit terms.
Hence, ignoring your free yearly credit reports could be one of the biggest credit mistakes to commit. Our suggestion is to obtain a copy of your credit report once in every four months from a bureau. This way, the schedule will you sufficient time to review a report, identify problems and fix them.
You’ll be able to tackle the next set of issues in the other reports, with a less burdened mind. Also, it will help ensure that the reporting bureau had updated your last report correctly.
4. Late Payments
You may think late payments are harmless, as long as you make up for it but the truth is far from so. You see, late payments can stay on your credit reports in all three bureaus for as long as seven years from the first date of your missed payment.
It will not only stay on your credit profile for seven years but perhaps even make you less eligible for other banking benefits. What’s even worse is that even when you make up for the late payment on another date, the bad impression does not go away.
Secondly, it is true that a customer’s payment history plays the primary role in dictating their credit scores. While the credit scoring model determines the method of calculation for the scores, the fact is that nothing can overrule the importance of payment histories.
You can ask any banking officer and they’ll confirm that late payments tend to shed a negative impact on every person’s credit scores.
5. Maximizing Credit Limit
Every person’s goal must be to maintain a good credit score and stay well out of debt. For this purpose, having a low balance on the credit card is essential. Perhaps the division of the credit score pie will better explain the importance of a low credit card balance to you.
Most of us know that payment histories amount to nearly thirty-five percent of one’s credit score. But another vital truth is that the ratio of credit utilization plays an almost equally important part. Plus, it occupies thirty percent of the share in the credit score pie.
It wouldn’t take much to figure out how you may displease your lenders if you rack a balance too close to the credit limit you enjoy. Moreover, it would clearly reflect your heavy reliance on the credit and surely make them unsure of lending out to you. The professionals would have correctly placed apprehensions about whether or not you’ll be able to pay off what you borrowed from them. And that too on time!
6. Ignorance of Billing Statement
Just like the credit mistakes people make, failing to review their annual credit reports, may also ignore their billing statement. The fact is that the billing statement is one of the handiest tools for catching any fraudsters and also reporting any errors in the statement.
The billing statement helps people review whether their transactions are inaccurate listings or where someone has smartly sneaked in transactions they never made. While it may not be a lot of fun to peruse through the billing statements, it is undoubtedly a great practice to verify that everything is accurate.
7. Not Comparing Options
People often fail to compare their options when they’re in the process of signing up for loans. We acknowledge that nobody has sums of money sitting around, which they could use whenever the need arises.
When it comes to some of life’s most impactful purchases, like purchasing a car or a home, getting married, or funding a project, we turn to loans. We do not mean to imply that applying for a credit loan is a mistake.
What we do wish to emphasize is that accepting any loan without comparing the alternative options, terms, and substitute types in the market is a mistake. By not researching and comparing well, you could very likely fall into an expensive trap and end up with the costliest option. Such is the consequence of ignorance.
You must also note that there are two types of loans: unsecured and secured. The latter are the ones where you have to put up collateral, such as a valuable asset, against the amount you’re borrowing. Many often put up their homes or cars as collateral as a form of assurance to the lenders that they’ll pay.
In case of failure to pay that loan, the lender will have the legal right to seize your collateral asset. Unsecured loans, on the contrary, do not involve collateral. It is simply risk-taking on the lender’s part and their optimism that you will pay their debt in full.
It may sound easy though but since the level of risks is higher in unsecured loans, the rates of interest and resultantly higher too. Hence, committing to either type without learning of their terms and conditions and looking for better alternates could land you in serious trouble later.
8. Falling for the Introductory Price Scheme
There is a common trend of introductory interest rates on credit cards. The problem with these is that they seem so enticing initially that many naively fall into the trap, believing they’ll be paying the least interest throughout their credit journey.
Among the list of credit mistakes to make, these are the most avoidable ones. You see, introductory prices are nothing but a scheme to grab your attention. The lowest rates seem very promising in the beginning but they come with an expiry date, which sadly not many realize.
Once that fantasy time period ends, your interest rates shoot up drastically and you likely end up paying more than you would have ever perceived. Hence, people must ensure when applying for credit cards that there is really a beneficial period of introductory price to enjoy. Moreover, it must not come with displeasing repercussions later.
9. Applying for too Many Credit Cards at Once
Every time you apply for a credit card, you must know that an inquiry will immediately launch on your credit profile. As far as the credit mistakes go, we highly discourage you from making too many card applications in a short time span.
Doing so will cause your credit scores to dip massively. Moreover, applying for too many credit cards within a short period will put the lenders on high alert regarding your profile. It will give them rightful reasons to suspect you of improper activities, not forgetting the fact that they will most likely deny your application.
Avoiding Credit Mistakes is Possible!
Credit mistakes have been the leading cause of why people see a massive decline in their credit scores and profile. At some point in time, most of us require a loan or two to finance certain necessities in life, such as purchasing a home, renting an apartment, and things like that.
In fact, many companies even make it a practice to review a candidate’s credit profile before hiring them as an employee. Hence, refraining from credit mistakes is not only important for maintaining a good credit profile and strong scores but also for having no difficulty in other aspects of life.
