10
Jan

credit mistakes

Guest Article by Alayna Pehrson – Digital Marketing Strategist at Best Company

Millions of people are striving to build credit to enjoy the benefits of a good credit score. Building credit, however, isn’t as easy as it may seem. Even if you had a solid credit education, you might still make credit mistakes if you aren’t paying attention. Here are a few common credit mistakes you should be aware of.

Overspending for rewards

Credit card rewards are a good motivation to use a credit card; however, many people are so motivated that they fail to realize how much they are actually spending. Regularly using a credit card can help build your credit, but overusing the card or using the card to make large purchases can be harmful to your credit and increase your debt. Having a rewards-based card can provide you with great benefits, but be aware of your overall credit card usage.

Using store credit cards

Store credit cards can appear attractive if you are looking for discounts and other rewards. What you may not realize before signing up for a store credit card, however, is that the interest rates can be extremely high if you choose to carry a balance on the card instead of paying it off monthly. Many retail stores will do everything in their power to get you to sign up for a store credit card. Even if you think you are credit savvy, you might not be able to keep up with store credit card interest rates.

Failing to check credit reports

This mistake is more common than you may think and can definitely harm your credit score. If you don’t check your credit report, then you won’t know if there are any credit report errors that need to be fixed or if there has been any suspicious activity that could lead to identity theft or fraud. Although you may be afraid to face potential mistakes on your report, knowledge is more powerful than ignorance. Overall, regularly checking your credit report can help you avoid a credit disaster.

Using credit cards to pay for things you can’t afford

A common myth is that credit cards are useful when you want to purchase items you can’t afford. Unfortunately, this is not the case. Credit cards aren’t designed for out-of-budget purchases, rather they should be treated as tools to build credit and maintain a budget. Instead of buying things you can’t afford, you should be using your card for smaller, recurring expenses that you could pay with cash or a debit card. After you make a payment with a credit card, pay off that bill as soon as possible to ensure you are avoiding late payments and rising debt.

Cosigning a loan

Although you may want to help someone get approved for a loan, cosigning isn’t usually the best idea for your credit. Cosigning for loans puts you into the position of being responsible for the debt itself, almost as if you are the one who is taking out the loan. Once you cosign for a loan (or even a credit card), it will appear on your credit report relatively quickly. Many people regret cosigning when they realize the amount of responsibility they have taken on. If you or the borrower can’t make the payments or handle this responsibility, then that’s a good sign to stay away from cosigning.

Avoiding credit completely

The very idea of credit can be frightening, especially if you have bad credit experiences or know someone who has. Avoiding credit all together may seem like a good way to avoid credit card debt or low credit scores. However, avoiding credit usually causes more harm than good. When you avoid credit, you aren’t actively raising your credit score or building good credit. Instead, your credit will suffer and you won’t be able to enjoy any benefits that come with good credit. Credit history is important and the longer you avoid credit, the worse your credit history looks and the more opportunities you miss. If you are scared of credit, you can do your research to figure out how to start building credit as well as find out why having good credit is so important.

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