Credit Mistakes That Can Haunt You

9/19/2023

With October upon us, it’s officially spooky season! Don’t let your credit mistakes spook you this Halloween. Review these tips for avoiding mistakes that can linger on your credit report and score.

You don’t want to make credit mistakes that will haunt you throughout the whole year. Credit cards can be great financial tools that can help you build credit, give your budget some breathing room, and earn you rewards. However, if you’re not managing your credit card usage correctly, the result can be quite the opposite. If credit is not managed correctly, the negative impacts to your creditworthiness can be significant. To ensure you’re taking advantage of the benefits of credit cards while avoiding their dangers and risks, here are some credit card mistakes and how to avoid them.

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Making late payments

Paying your bills consistently on time is the largest factor in your credit score and is responsible for 35% of your score. Your score could take a hit once a payment is 30 or more days past due. Late payments are one of the biggest credit mistakes you can make, and they stay on your credit report for seven years. The more of these late payments you have, the more your score will drop. Late payments remain on your report even if you pay the past-due balances.

Late bill payments will detrimentally affect your credit the fastest, so scheduling your bills and making payments automated will ensure you don’t miss a payment. You can set up autopay through your lender or bank accounts, so that payments are made automatically. This way you’ll never forget to pay your bills and your credit won’t feel the repercussions. When setting up autopay, make sure you have enough money in your account to cover your bills on an ongoing basis.

Read More: Understanding Your Credit Score and How to Improve It

Only paying the minimum

A minimum payment is the smallest amount you must pay on your credit card each month to remain in good standing. Making the minimum payments by the due date every month can help keep your account in good standing and help you avoid penalties and fees. However, paying only the minimum amount on your credit card each month means you’re also carrying a balance from month to month. Not only will you be charged interest on that balance, owing more money in the long term, but it can also damage your credit. If you’re only making the minimum payment every month, it can take longer to pay off your credit card debt.

Try to pay off your cards in full each month. If that’s not possible pay as much as you can. Using less than 30% of your available credit is a great start in getting your credit under control, and if you can get your credit-to-debt ratio under 10%, that’s even better. If you have a large amount of debt you’re trying to pay off, try a debt payoff strategy.

Closing credit accounts

If you no longer use a credit card, or you’ve completely paid it off and no longer want the temptation of using it, you may consider closing the account. Unfortunately, this can hurt your credit score. If that credit card was open for longer than the rest of your accounts, you could decrease the average age on your credit history. The longer your accounts have been open, and being used responsibly, the better it reflects on your credit report, and subsequently your credit score. Opening and closing credit cards is a bad idea if you want to build a strong credit score. The length of your credit history impacts 15% of your credit score.

Read More: How to Build on your Credit Score, The Right Way

Keep your accounts open and in good standing for the long term. Also, refrain from opening unnecessary new accounts. If you think you may be tempted by your credit card, keep the account active, but cut up and throw away the physical credit card so you’re not tempted to use it. Or use the card for one or two small purchases per month, and then pay it off in full each month. This will help improve your payment history.

Unnecessary Spending

It’s easy to use a credit card, which makes it easy to overspend or make unnecessary purchases. Since you aren’t seeing money immediately leave your bank account, it can be easy to lose track of your credit card spending. Unnecessary overspending can quickly get you in trouble with credit cards.  Making unnecessary purchases on your credit card can make it more difficult to pay off the debt each month, so you may accrue interest on the outstanding balance. This also increases your chance of making late payments as the minimum payment increases.

Read More: Solidify Your Financial Intentions

You should only charge something if you can afford to pay it off in full and on time when your credit card statement comes due. Try to only use your credit card if you must. Keep an eye on your bank accounts to ensure you have enough to pay for what you need. Consider using a debit card instead of a credit card or use cash when possible.

Not monitoring your credit

Monitoring your credit report and score is an important aspect of your financial health. Make a habit of checking your credit activity regularly to find and fix any errors that could damage your credit. In addition to checking your credit report and score regularly, you should also review your billing statement. It’s important to check that the transactions listed on your bill are accurate, so that you can take early action against fraud or reporting errors. Fraudulent activities and unrecognized charges can go unnoticed if you don’t regularly review your statements. By reviewing your statement monthly, you’ll understand how much you’ve spent, how much you’ve paid, and what fees have been assessed.

Check your credit reports regularly to find reporting errors that could damage your score. You can find your credit report through one of the three credit reporting bureaus: Experian, Equifax, and TransUnion. You can learn more about the three credit reporting bureaus here. You can also access your credit report for free at AnnualCreditReport.com. When you get the report, review it for any errors or mistakes and contact the credit bureau right away if you find any anomalies.

Read More: The Three Credit Bureaus: Everything You Need to Know

Set aside time each month to go through your billing statement. Report any suspicious activity immediately to your card issuer. By being aware of common mistakes and taking proactive measures, you can use your credit card as a beneficial financial tool while avoiding potential risks.

Using credit wisely is one of the keys to achieving long-term financial success. By avoiding credit mistakes and continually educating yourself on financial best practices, you’ll empower yourself to stay safe with credit cards and enjoy all of the perks they can offer. Not paying attention to how credit really works leads people to make credit mistakes, which negatively impacts their financial lives. Learning how to use credit is interconnected with other areas of your financial life.

 

 

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