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. Understanding the most common credit errors to avoid, and how to correct them, is therefore essential. This article will highlight the 9 most common credit mistakes as well as provide practical tips for how to deal with them.
- Lack of a Budget
Budgeting can help you avoid overspending or late payments. Avoid this mistake by creating a budget.
- You Can't Ignore Credit Card Benefits
Credit cards are often accompanied by rewards and benefits. Take advantage of these perks to get the most out of your credit cards.
- Ignoring Your Credit Score
Ignoring a credit score is a bad idea. Regularly monitoring your score allows you to track and improve your progress.
- Don't Build an Emergency Fund
Not having an emergency fund can lead to missed payments and damaged credit. Create an emergency fund and avoid this mistake.
- Maximizing Credit Card Limits
The impact of maxing out credit cards on your credit rating can be significant. Your credit utilization rate should not exceed 30% of your total limit.
- Do not Pay Attention to Transfers of Balance
Balance transfers can help consolidate your debt, but there are also fees and high interest rates. Attention to terms and conditions for any balance transfer offers.
- Avoid Using Credit Cards
Your credit score will be negatively affected by not using your cards. To build credit, use your cards frequently and pay them in full.
- Too Many Credit Card Accounts
Too many credit card accounts can lead to missed payments and overspending. Your credit card account number should be kept to a minimum.
- Do not check your credit report
Regularly reviewing your credit report is important to ensure that there aren't any errors or fraudulent activity. You can obtain your credit history for free from each major credit bureau once per year.
Avoiding these credit mistakes, and improving your credit score can help you improve your financial standing. This will not only help you qualify to receive loans with better interest rates but also improve your financial health.
Frequently Asked Questions
What is the definition of a good credit rating?
A good credit score is typically considered to be 700 or above.
How often should I check my credit report?
At least once a calendar year, you should review your credit report.
Paying off a loan before the due date can hurt your credit score.
Paying a loan off early can help improve your credit rating by reducing the credit utilization rate. It also shows creditors that you're a responsible borrower.
Can I improve my credit score quickly?
Improving your credit score takes time, but there are steps you can take to see results within a few months, such as paying off debt and correcting errors on your credit report.
What should I be doing if I discover an error in my credit report?
You can dispute an error you find on your credit file by contacting the credit bureau responsible for the error, as well the lender who supplied the incorrect information.