As we navigate through life, our credit score can often be the difference between getting approved for a loan or not, landing our dream apartment or settling for a less desirable one, and even being considered for certain jobs. Therefore, it's essential to understand the common credit mistakes to avoid and how to fix them. This article highlights 12 some of the most frequent credit mistakes, and provides practical tips on how you can address them.
Close your old credit cards
Close old credit cards to improve your credit rating. Keep old accounts to lengthen your credit history.
The Budget Problem
Without a budget, you may end up overspending your money and paying late. To avoid this error, create a budget.
Failing to communicate with Lenders
Missed payments and damaged credits can be the result of failing to communicate. You should contact your lenders immediately if you find yourself struggling to pay.
Ignoring Credit Card Benefits
Many credit cards offer rewards and other benefits. Take advantage of these perks to get the most out of your credit cards.
Why You Should Not Build an Emergency Fund
If you don't have an emergency fund, it can lead to missed payment and damage your credit. Create an emergency fund and avoid this mistake.
Loans with Cosigners
Cosigning a loan for someone else can negatively impact your credit score if they default on the loan. Cosigning a loan can negatively impact your credit score if the borrower defaults.
Avoiding Credit Repair Scams
Credit repair scams can be tempting, but they often come with high fees and little to no results. Avoid scams and improve your credit by yourself or working with reputable companies.
Avoid Using Credit Cards
Your credit score can be negatively affected if you do not use your credit card. Credit is built by paying off your credit cards in full and using them regularly.
Applying For Too Much Credit At Once
Multiple credit applications in a short period of time may damage your credit rating. You can avoid this error by spacing out the credit applications.
Defaulting on Loans
Defaulting on a loan can have a severe impact on your credit score. If you are having trouble making payments, contact your lender and ask about repayment options.
Do not check your credit report
Regularly reviewing your credit report is important to ensure that there aren't any errors or fraudulent activity. The three major credit bureaus offer free access to your credit reports once a yearly.
Do not Pay Attention to Transfers of Balance
Balance transfers can be a useful tool for consolidating debt, but they can also come with fees and high-interest rates. Be sure to read the fine print of any offers for balance transfers.
Avoiding these common mistakes in credit and taking the necessary steps to improve credit can help you achieve a better financial status. This will not only help you qualify to receive loans with better interest rates but also improve your financial health.
Common Questions
What is a good credit score?
Typically, a credit score of 700 and above is considered good.
How often should you check your credit report?
Check your credit report every year.
Can repaying a loan earlier hurt my credit?
Paying back a loan earlier can actually increase your credit score. This happens by reducing credit utilization rates and showing lenders you are responsible.
Can I improve my credit score quickly?
You can improve your credit rating over time by taking certain steps, like paying off debt or correcting mistakes on your credit report.
What should I be doing if I discover an error in my credit report?
If you find an error on your credit report, you should dispute it with the credit bureau reporting the error and the lender that provided the inaccurate information.