Common Credit Mistakes And How To Avoid Them

What is credit? Credit is defined as the ability to borrow money or something of value now with the understanding you will repay the lender later with interest. Managing credit well is one of the essential disciplines in your financial life. Developing good credit habits can enhance your financial health.

11 Common Credit Mistakes To Avoid

1. Not Paying Your Credit Card On Time You are required to pay the minimum amount by the due date on your bill as a credit cardholder. If your household is like ours, you probably lead busy lives. You probably are responsible for many monthly bills, not just your credit card bills. If you are late paying a card bill, you will likely incur $25 the first time you are late, but the amount will rise the next time.

2. Carrying A Large Balance On Your Credit Card Paying the minimum on your credit card bill on time is an easy fix and makes the card issuers happy. They stand to make a tidy sum on interest income at the high APR rate they charge their average customer.

3. Don’t Close Any Credit Cards Even if you don’t use certain credit cards, don’t close these accounts. Often we have several credit cards that were once appealing because of certain features or through a favorite store. However, over time, you have lost interest and decide to close the account to worry about theft or temptation to use it.

4. Not Reviewing Your Credit Report Periodically According to an FTC study, one out of five people has found errors on their credit report. The sooner you find the mistakes, the easier it is to fix them.

5. Not Reading The Fine Print On Your Credit Agreements Credit card agreements have incredibly complex terms and conditions. You should understand the particulars of the APR, penalty structure, the benefits from cashback, rewards, discounts, and other perks they are providing.

6. Paying A Loan Off Early Can Hurt Your Credit If you suddenly received an incredible amount like a bonus or an inheritance, you may want to pay off your loan. Be aware that there may be negative consequences. Some loans, if paid ahead of time, incur pre-payment penalties. These are usually relatively small and worth getting rid of the debt burden.

7. Don’t Make Excessive Hard Inquiries For A Loan Creditors get worried about people making too many “hard inquiries” that occur when applied to a lender of some sort. Lenders see this as a sign of risk that you may be overextending your debt. As we mentioned earlier, hard inquiries may hurt your credit score.

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