Our credit score is often the difference in getting a loan approved or not. It can also be the difference in landing our dream apartment, or having to settle for one that's less desirable. Or even being considered for some 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.
Why You Should Never Check Your Credit Report
You should review your credit report on a regular basis to make sure there are no mistakes or fraudulent activities. Once a year, you can get your credit report from the three main credit bureaus.
Not Understanding Your Interest Rates
Understanding your interest rates is important to avoid unexpected charges. To understand your interest rate, read your credit card contract carefully.
Payday Loans
Payday loans can be expensive. These loans have high rates of interest and fees which can spiral out-of-control quickly.
Applying for too Much Credit All at Once
If you apply for many lines of credit at once, it can damage your credit score. You can avoid this error by spacing out the credit applications.
You Can't Ignore Credit Card Benefits
Credit cards often come with rewards and benefits. You can get the most value from your credit card by taking advantage of these rewards.
Failing to Communicate with Lenders
Failure to communicate with lenders can result in missed payments and damage to your credit. You should contact your lenders immediately if you find yourself struggling to pay.
Not Building an Emergency Fund
A lack of an emergency fund may lead to missed payments or damaged credit. Create an emergency fund and avoid this mistake.
Late Payments
It is common to pay your bills late, which can affect your credit score. Late payments can be recorded on your credit history for up seven years. Set up automatic payment or reminders so you don't miss payments.
The Budget Problem
If you don't have a plan, it can lead to excessive spending and late payments. To avoid this error, create a budget.
Avoid Using Credit Cards
Credit scores can be affected negatively by not using credit cards. Build credit by using your cards and paying them off regularly.
Too Many Credit Card Accounts
Having too many credit cards can lead to overspending and missed payments. Limit the number of credit cards you have.
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 an excellent credit score?
A credit score of 700 or more is considered good.
How often should I review my credit report and score?
It's recommended that you check your credit report at least once a 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.