10 Credit Missteps That Could Impact Your Score
Some financial errors are worse than others. While over drafting your spending account may incur a one-time fee, missing a credit card payment could stay on your credit record for years. Find out how to avoid the credit missteps that can seriously impact your credit score and financial health.
Sometimes making credit mistakes is unavoidable, especially when you’re just learning the ropes in the world of finance. But with a proper understanding of what not to do, you can begin to make better decisions concerning your finances and utilize credit properly. Below, we dive into some of the most common credit missteps that hurt your credit score so you can avoid making them twice, or even at all.
While making a late payment is better than making no payment at all, late payments still have consequences. Some lenders may charge you a late-payment fee, which could actually be more than your minimum payment. Your tardy payment could also show up on your credit report, which could damage your credit score. Consider setting up automatic payments or text and email alerts so that you’re reminded when your payment is due.
Not Understanding the Terms
Read the terms and conditions! Understand all the terms of your credit card, including introductory APR, standard APR, length of introductory period, balance transfer fees, offer limitations, foreign transaction fees and more. Many people are enticed by a low introductory APR and aren’t aware of when this rate expires. Some credit card companies might send you a reminder that your APR is about to change, while others assume you read the terms and conditions of your offer and aren’t legally required to inform you of the introductory period expiring. Understanding all of your card’s terms is the foundation for avoiding preventable credit mistakes.
Making the Minimum Payments
Again, while making the minimum payments is better than not making a payment, people often don’t realize how difficult paying off a high-interest credit card can be when they only pay the minimum amount each month. The best strategy is to pay off your balance monthly. If you’ve racked up some debt on your card, try to cut frivolous spending and pay for necessities with your debit card or cash until you can successfully pay down your credit card.1
Not Shopping for the Best Deal
One of the biggest mistakes you can make with credit is accepting too many credit card offers. Easy to get credit cards aren’t always the best credit cards. Oftentimes the cards that have high acceptance rates also have the highest APRs. Look for a card with a low introductory APR but that also has a reasonable standard APR, so you will be able to pay off your monthly balance each month. Also shop for cards that provide rewards, have low or no annual fees and offer additional services such as fraud protection or mobile alerts.
Applying for Too Many Cards at Once
Thinking that credit cards are a form of supplemental income is a big mistake. While having more than one credit card can impact your credit utilization ratio (your total amount of credit available compared to how much of that available credit you are using), too many cards can be a recipe for debt. If you’re wondering how many credit cards are too many, keep in mind the more cards you have the harder it can be to keep track of all payments. This could even make it easier to miss a payment.
Remember that each new application is noted on your credit report every time you’re tempted to sign up for a store card just to save 10% on a purchase.
Not Taking Advantage of Rewards
Many credit cards offer sign-up bonuses and the opportunity to activate extra rewards in rotating categories. Discover offers 5% Cashback Bonus at different places each quarter like gas stations, grocery stores, restaurants, Amazon.com2, or wholesale clubs up to the quarterly maximum each time you activate. This is an excellent way to rack up rewards points and cash back on things you’re already purchasing. These incentives are too valuable to ignore, yet many people still do.
Buying Things You Don’t Need
Contrary to popular habits, a credit card should not be used to pay for things you can’t afford. Rather, credit cards should be used to pay for purchases you want rewards on or things that you are more likely to be able to pay off each month. A credit card is not free money. A careful examination between needs and wants could deter you from making unnecessary, impulsive purchases.
Maxing Out Your Credit Card
Checking your monthly credit statements can keep you from exceeding your credit limit. Maxing out a credit card is not only embarrassing when your card is rejected at checkout, it could also hurt your credit score by increasing your credit utilization ratio. Having multiple cards at this threshold could also compound the issue.
Though sometimes convenient, your credit card is also a means to obtain cash. You may be subject to cash advance fees and a high interest rate. Whenever possible, withdraw cash from your checking account only and avoid these hefty fees.
Not Taking Your Credit Seriously
The biggest mistake you can make is not taking your credit rating seriously. A good credit rating is essential for making large future purchases like homes or applying for business loans. You should make every effort possible to ensure your credit score is unblemished.
These mistakes, though common, are completely avoidable when you are aware of them.