The lack of expert credit knowledge can lead to a detrimental credit score. Credit Mistakes to Avoid include small errors and misunderstandings like missed payments, applying for too many loans at once, and not checking your credit report regularly. These mistakes can increase your debt, result in higher interest rates, and even lead to legal hassles. It is vital to stay financially diligent and alert with your credit at all times.
Top Credit Mistakes to Avoid
Here, we list some of the most common Credit Mistakes to Avoid that often bring financial hardship to people. Steer clear of these mistakes and make your future safer.
1. Delaying or Missing Payments
Missing credit card payments is a common mistake that can cost you heavily. It has the most catastrophic effect, as you incur late fees, lower your credit bureau score, and increase your interest rate. If you face difficulty making payments, connect with your credit card company and create a more convenient payment plan.
2. Making Minimum Payments
One of the most common mistakes, many credit card users make only the minimum payments. This will keep more debt in the long run as the minimum payment covers only the interest amount, not the principal. When the principal balance is untouched, the debt remains intact. You may be clearing off the debt but just paying the interest. So, try to pay more than the required, clear the entire amount due, and reduce your debt burden.
3. Excessively spending on your credit card.
To keep your credit healthy, using your credit card wisely is important. The people who excessively spend find it difficult to pay the amount back. Also, using the card too much hampers your credit utilization ratio. It is important to have a credit utilization of less than 30% for credit improvement. For this purpose, it makes sense to continue
4. Not checking your Credit Card Statements Often.
Always ensure to review your credit card statements regularly. This will keep you updated with your spending amount and habits. Also, check your interest rates and fees to negate the possibility of any errors. Regular credit monitoring can inspire you to clear your debt.
5. Withdrawing cash from Credit card
Another big mistake that makes credit building difficult is taking out cash from credit card. The amount of cash you withdraw attracts an instant interest rate. You don’t even get the grace period and may incur additional fees like cash advance fees.
6. Applying for New Credit
A ‘hard inquiry’ is generated whenever you apply for credit, which is added to your credit report. The multiple number of hard inquiries in a short period lowers your credit score. Try to apply for credit only from one or two lenders. Ideally, keep the count of hard inquiries to 3 or less in a 90 day period. Find ways to check whether you will get credit card approval without damaging your credit score. You can pull your credit bureau score free of cost from www.duefactory.com without impacting your credit score as this is considered a soft inquiry and will not get counted in the credit report.
7. Closing a credit card
The length of holding the credit can make up your credit score. Closing a credit card effects your credit history length. Keep your old cards unless the credit card company charges you an annual fee.
Closing one of the multiple credit cards may also impact the credit score by increasing the credit utilisation percentage. Say you have two credit cards, both with a 1 lac credit limit. One card has a 50k outstanding balance, and the other, a card you never use, has no balance. Your current utilization rate is 25% (50,000/2,00,000). That’s below the 30% threshold lenders like you to be at. But if you close one of the cards, you’ll increase your utilization to 50%!
8. Not Disputing Error
Many people don’t know they can dispute credit report errors. You must access your credit report, read the same carefully, and look for errors. You can write to credit agencies and have the same corrected. If needed, you must submit supportive documents proving the error. Removing the wrong information in your credit report will enhance your CIBIL score. However, you must ensure to take care while disputing. Do not dispute everything in the hope of getting false things corrected. Take your dispute to the right entity.
Wrapping up
A credit card is a great asset, but you must use it judiciously. Clear your dues timely to avoid paying high-interest rate charges and dropping your credit score. Mistakes like missing a payment, not checking the credit report, overspending, etc., can put you in financial trouble. Now that you have the list of the most common mistakes to avoid, keep the credit tips in mind and have a secure financial life ahead!
FAQs
Q1. What are the most common credit mistakes?
Ans. Common credit mistakes include missing payments, paying only the minimum amount, overspending, applying for too many credits, carrying a balance, not disputing errors in the credit report, closing the card, and more.
Q2. Can the errors on my credit report be corrected?
Ans. Yes. If you observe any discrepancy on your credit report, you must dispute the same to the credit bureau. They will investigate the matter and fix the same.
Q3. Why is minimum payment considered a mistake?
Ans. Paying only the minimum amount helps you avoid late fees and penalties. But this amount covers only the interest and not the principal debt amount. Not paying the full amount will increase the time to pay the entire debt.
Q4. How does carrying a balance impact my credit health?
Ans. Carrying a balance increases the debt and lowers the credit score by increasing your credit utilization ratio.
Q5. Why should I review my billing statements every month?
Ans. Reviewing the billing statements every month will make sure that the recorded transactions are correct. You can detect the fraudulent transactions and report them.