Credit mistakes can seriously damage your credit score. Find out how to avoid these 10 common mistakes.
10 Credit Mistakes You Should Never Make: Credit mistakes can cost you, especially if you’re not careful. Here are 10 credit mistakes you should never make if you want to avoid credit troubles and protect your financial future.
10 Credit Mistakes You Should Never Make
Losing your credit card is a hassle, but not reporting it missing could have severe consequences. Before it happens, take time to set up automatic alerts with major credit card companies. These will notify you via email or text message if your payment information is used without your permission. Automatic alert options vary by company, so check your account for details on how to add them.
It’s important to note that setting these alerts may result in some false alarms as services are often used in stores that scan cards with their own systems before transferring payments directly from checking accounts and don’t use Visa or MasterCard processors—but if you know when and where you typically use your card, those instances should be easy enough to differentiate from fraudulent activity.
1) Not having a credit card
It might seem counterintuitive, but having credit available is crucial in today’s economy. If you’re looking for a new apartment, need a better rate on your car insurance, or have any sort of personal loan in mind (whether it’s a small personal loan or financing for that new business idea), you’ll need good credit to get approval. And even if you don’t intend on borrowing money right now, building up a history of responsible use of credit can help with larger purchases later.
Just think: No one wants to lend money to someone who can’t manage his or her own finances responsibly! Use a rewards card and pay it off in full every month—and don’t be tempted by those enticing store-branded cards with their large sign-up bonuses.
They may sound like a great deal, but they come with high-interest rates and annual fees. Remember: Your goal is to establish good credit; that means using credit wisely while paying off your balance each month. Think of it as an investment in yourself.
2) Not having your own bank account
Making payments from a checking account that isn’t in your name can make it difficult to build or maintain a good credit history. Your regular purchases will appear on your credit report, but without an account of your own, you won’t have built up any of your own credit histories. And if you were ever unable to pay back what you bought, that mistake could end up on your credit report and hurt your future financial prospects.
So if you want a decent score—and if you hope one day to qualify for something like a car loan or mortgage—you’ll want an account of your own (even better: several accounts). That way, every time you buy something with plastic, you’re building your credit as well as paying off your balance.
It’s not hard to do; just ask your bank about getting a card of your own. Or open an online savings account at ING Direct and link it to their Orange Savings mobile app for easy deposits and withdrawals. If you need help with money management basics, check out Mint’s guide to getting started with personal finance software.
3) Being in Debt
If you’re in debt, it can really hold you back from making big life decisions. Whether you want to buy a house or vehicle, go back to school or just travel more, there will be financial constraints that prevent you from doing so. While these are all good things that people should experience at some point in their lives, they’re also things that shouldn’t be delayed unnecessarily.
If you’re constantly sinking deeper into debt with no chance of digging out, it might be time for a change of plan. Step one: get yourself out of debt! There are numerous ways to do so and cutting back on expenses is often enough to reduce your debt burden. However, if you need a second opinion about how to get out of debt, consider consulting with a credit counselor. They’ll help set up an actionable plan to pay off your debts while helping you maintain control over your finances. The best part? It won’t cost anything unless you decide to take action!
4) Not Filing Taxes
Do not assume that if you don’t make enough money that you do not need to file. Ignoring your tax filing obligations could result in a late-filing penalty, underpayment penalty and interest, or even criminal prosecution. The IRS audits nearly 1 percent of all tax returns every year – that’s about 1 million returns. It’s better to file on time and correct mistakes than risk an audit by waiting until you have gathered all your paperwork.
5) Forgetting about identity theft
Identity theft is a nasty surprise that can wipe out your entire credit history. It’s not easy to bounce back from identity theft, and you may even have debt added to your credit report as a result of it. By making sure you don’t overlook any important steps in protecting yourself, you can reduce your risk of becoming a victim. Here are some things you should do now to protect yourself against identity theft
6) Running up old debts
This is especially important if you have high-interest debt such as credit cards. While it may be tempting to renege on paying a bill, racking up late fees and hurting your credit score, putting off payments only makes matters worse in the long run. The best way to get out of debt is by learning how to manage it properly from day one. See how some mistakes can haunt you for years—or decades—to come by reading these 10 Credit Mistakes Everyone Should Avoid.
7) Taking out payday loans
Payday loans are relatively short-term, which is what makes them so popular with consumers—but also makes them somewhat dangerous. Many consumers take out multiple payday loans at a time and end up paying an annual interest rate of more than 500 percent. In some cases, even if you pay off your loan on time, you could get hit with fees as high as $30 or $40 for every $100 borrowed.
To make sure you don’t become a victim of predatory lending practices like these, always avoid payday loans and other high-interest loans at all costs. Instead, look into low-cost alternatives such as credit unions and community banks. If you must take out a loan, consider getting a personal loan from your bank or credit union instead. These types of loans typically come with lower interest rates and fewer hidden fees.
8) Trusting online reviews too much
Online reviews are important and handy, but they can sometimes be misleading. In order to make sure that you’re getting honest feedback, head out into your community—be it online or in-person—and ask people what they think of a company’s products or services. An actual conversation with a real person will give you much more insight than an internet comment ever could.
And if you’re thinking about leaving a review for your favorite business, try adding something personal like how long you’ve been going there or even when you first started using their products and services. It makes all of those one-star horror stories seem a lot less likely!
9) Not using credit karma
When it comes to credit, it’s always better safe than sorry. CreditKarma monitors your credit report for any new activity, including card applications and newly opened accounts. As a result, you’ll know instantly if your identity has been stolen. In addition, CreditKarma offers personalized recommendations and tips about how you can improve your score over time. Free credit monitoring and help with boosting your score? What are you waiting for? Sign up today!
10) Not checking your credit score regularly
Checking your credit score regularly—and keeping tabs on whether it’s rising or falling—is an important part of being financially responsible. Checking your score should be a part of your monthly budgeting routine; it doesn’t cost you anything, and it can give you valuable insight into how well you’re handling your finances. A low credit score isn’t necessarily a death sentence for finances.
But if one is hovering in that range, not checking it could be dangerous. If there are problems with your score, you need to know about them so they can be fixed. If there aren’t any problems, then checking will ensure that continues to be true. Not having enough money saved: Saving money is often difficult because it involves putting off immediate gratification for future rewards.
This makes saving more difficult than spending, which requires no effort beyond pulling out a card or writing a check (or swiping). Still, saving money is crucial because when emergencies happen—which they inevitably do—it’s nice to have something set aside instead of having to go into debt just because something unexpected happened. The problem comes when people don’t save enough and end up getting themselves into trouble as a result.
Also Read: 10 Basic Steps to Reach Your Financial Goals
The point of all of these mistakes is, that no matter how small they seem, they can add up quickly. It’s important that you’re mindful of each and everyone and make sure to avoid them in order to keep your credit report in good standing.
Remember, there are three types of information on your credit report: personal information, public records, and accounts. Even though they are called credit reports, they don’t have anything to do with how much money you borrow or payback. They only show that you paid your bills or didn’t pay them.
What is the difference between a credit card and a debit card?
A debit card is like a regular ATM card. It deducts money from your bank account. If you spend too much with a debit card, you won’t have enough money in your account to pay for it all when your statement comes due.
What are the best ways to improve your credit score?
Lenders, landlords, and other businesses use your credit score to determine if you are a high-risk or low-risk borrower. The higher your score, the more likely they are to extend you credit.
What is a good way to build credit?
Even if you have a good job, there may be times when you want to borrow money but can’t qualify for a loan. Building good credit can help in these situations, and it’s also essential if you want to take out loans in your later years.
How do I get a credit card?
In order to get a credit card, you’ll have to apply at a bank, credit union, or financial institution. These institutions are called creditors and will generally require you to fill out an application, and provide proof of identification and income.