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 highlights 11 some of the most frequent credit mistakes, and provides practical tips on how you can address them.
Failing to Communicate with Lenders
Failing to communicate with your lenders can lead to missed payments and damaged credit. Reach out to your lenders if you're struggling to make payments.
Avoiding Credit Repair Scams
Credit repair scams can be tempting, but they often come with high fees and little to no results. Avoid these scams if you work with reputable agencies to repair your credit or improve your credit score.
The Problem of a Co-Signer Without a Plan
Co-signing without a plan could put you in an uncomfortable financial position. Before co-signing a loan, have a plan in place for how you'll handle payments if the primary borrower defaults.
Don't Ignore your Credit Score
Ignoring your credit score can be detrimental. Checking your credit score regularly can help you track your progress, identify areas where your score needs improvement, and identify any improvements.
Not Building an Emergency Fund
Lack of emergency funds can cause missed payments and damage to credit. This mistake can be avoided by creating an emergency funds.
Not Having a Budget
A lack of a budget may lead to late payments and overspending. To avoid this error, create a budget.
Not Using Your Credit Cards
Not using your credit cards can impact your credit score negatively. You can build credit by using and paying off your cards regularly.
Late Payments
Payment of bills late can harm your credit score. Late payments will remain on a credit report for a period of up to seven year. Set up automatic payments or reminders to ensure you pay on time.
Too Many Credit Card Accounts
A large number of credit cards can cause you to overspend and miss payments. Limit the number of credit cards you have.
Using Payday Loans
Payday loans may be a costly error. These loans often come with high-interest rates and fees, which can spiral out of control quickly.
Retail Store Card Application
Although applying for retail store cards may be tempting, they often have high rates of interest and fees. Think carefully before applying for these types of credit cards.
By avoiding these common credit mistakes and taking steps to improve your credit score, you can put yourself in a better financial position. Not only can you get better interest rates and qualify for more loans, but your financial position will also improve.
Frequently Asked Questions
What is the definition of a good credit rating?
Typically, a credit score of 700 and above is considered good.
How often do I need to check my credit score?
At least once a calendar year, you should review your credit report.
Can repaying a loan earlier hurt my credit?
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?
The process of improving your credit score can take time. However, you can make progress in just a few months by settling debts, and repairing errors on your reports.
What should i do if a mistake is found on 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.