Finance Blog

Common Credit Mistakes

Credit Cards, Personal Finance

Of course the most common mistake people make with respect to their credit problems is charging too much to their credit cards. But, that is not the only thing that can work against them financially. Here are a few other mistakes that you should avoid:

Knowledge is one of the best things you can get to help you overcome your credit problems. You need to get informed about your own finances and credit rating. You need to study and learn about how certain things can affect your credit. For instance, you need to know what you are paying in interest on each of your credit cards and what the fees are. Fees can vary significantly among various credit cards. You should always make sure you know what the interest rate you will be paying and what the annual fees are before you sign up for any given card. With your existing cards, find out what these rates and fees are, and shop around for lower ones if necessary. This tip alone could save you hundreds of dollars in interest rates and fees.

Another mistake to avoid with relation to your credit cards is that you should not succumb to raising the limits on your cards. Increasing the limits will only tempt you to spend more. When credit card companies notify you that they will be raising your limits, call them and refuse the increase. As a note, you should only use your credit cards when strictly necessary (as in booking hotels, air travel or car rentals) or only for emergencies. Pay cash for everything else, and if you can’t afford to pay cash for the item, save until you have enough.

Never stretch out a loan to get lower payments. This may lower your monthly payments initially, but will result in you paying higher interest charges over the life of the loan. When taking out an installment loan, always ask for the shortest payment period possible.

Many people take out consolidation loans, which are a good idea. Consolidation loans have helped many people get back on track financially. What a consolidation loan does is combines all of your outstanding loans into one, usually at a lower interest rate, and you then pay one monthly payment. As mentioned, this is a good idea, but the mistake many people make is that they then continue to charge other purchases and make other loans. It is vital that after you consolidate all your loans together, stop charging. Close your credit card accounts and use cash instead, otherwise you may end up back where you started on the credit card roller coaster.

An important point in regards to your finances and credit is that you should place a high value on your credit rating. Many people do not realize how valuable a good credit rating can be. It can seriously affect you when a legitimate need arises and you need to borrow money. For instance, if you want to take out a mortgage for a house purchase, having a negative credit rating may cause the lender to reject your application. Abusing your credit cards and failing to follow through on the credit obligations can cause you to have a bad credit rating.

Curb your impulse buying. If you are prone to buying your ‘wants’ on impulse, don’t carry your credit cards in your wallet. Leaving them at home or putting them away will cause you to have time to think about whether that purchase is really necessary.

By keeping yourself informed about your credit and finances, you will be in a better position to solve and credit problems you may have. Using the tips above will also help you get back on the right track.