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 will highlight 12 of the most common credit mistakes and provide practical tips on how to address them.
Cosigning Loans
When someone defaults on a loan that you cosigned, your credit score can be negatively affected. Consider carefully whether you want to cosign for someone.
What to do if you are a co-signer without a plan
Co-signing without a plan could put you in an uncomfortable financial position. Prepare a payment plan before you co-sign a loan.
Credit Repair Scams to Avoid
These scams often involve high fees with little to no return. Avoid these scams through working with reputable credit agencies or by improving your credit rating on your own.
Retail Store Credit Card Applications
These cards come with high interest rates and fees. Before applying for retail store credit cards, think carefully.
You Should Check Your Credit Report
Reviewing your credit reports regularly is essential to ensure there aren't errors or fraudulent actions. You can obtain your credit history for free from each major credit bureau once per year.
Failing to communicate with Lenders
If you don't communicate with your lender, it can lead to missed payment and damaged credit. Reach out to your lenders if you're struggling to make payments.
You Should Not Use Your Credit Cards
Your credit score may be negatively impacted if you don't use your credit cards. Build credit by using your cards and paying them off regularly.
Close your old credit cards
Closing an old credit card account can impact your credit score negatively. Keep old accounts to lengthen your credit history.
Applying For Too Much Credit At Once
Your credit score can be negatively affected if you apply for several lines of credit within a short time period. Space out your credit applications to avoid this mistake.
Not Understanding Your Interest Rates
If you do not understand your rates, you may be charged unexpected fees. Read your credit card agreement carefully to understand your rates.
Payday Loans: Use them to your advantage
Using payday loans can be a costly mistake. These loans are often associated with high interest rates and fees that can quickly spiral out of control.
You don't have a budget
Without a budget, you may end up overspending your money and paying late. Avoid this mistake by creating a budget.
Avoiding these credit mistakes, and improving your credit score can help you improve your financial standing. 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 considered a good score for credit?
Typically, a credit score of 700 and above is considered good.
How often should I check my credit report?
You should check your credit score at least once per year.
Can paying off a loan early hurt my credit score?
Paying off your loan early will actually improve your score. This is because it reduces your credit utilization and shows lenders that you are responsible when using credit.
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 do if I find an error on my credit report?
You should contact the credit bureau that reported the error as well as the lender who provided the inaccurate information if you find an error in your credit report.