Making mistakes is common, but what is important is how much you have learned from your past mistakes and what have you done to avoid the mistakes that you made earlier. Similarly, if you are willing to save money then you should avoid few mistakes that you have been making all through.
Here we have a list of credit mistakes that should be avoided by all. Avoiding these mistakes will be beneficial for maintaining a good credit score and availing good credit from the lenders. If an individual is cautious about his spending habits and maintains a proper discipline while managing his credit, then there are less chances of making credit mistakes that could hurt your credit score. The most important things to follow amongst all the others is to pay all your dues on time, set up reminders for your outstanding dues, inform the credit bureaus about any error in your credit report and do proper research before applying for a credit card or a loan, so that you can avoid making hard enquiries on a frequent basis.
1. Do Not Withdraw Cash With Credit Card:Withdrawing cash from your credit card is a costly affair. If the balance that is outstanding on your credit card is high and you have withdrawn cash from your credit card, then your credit score will get affected in a bad way. The more amounts of cash you withdraw using the credit card, the more harm it will cause to your credit score. It is always recommended that you avoid taking out cash using your credit card.
2. Avoid Missing the Payment of Your Bills:If you are an individual who always fails to make the payments on time, then it is high time you stop doing it. Because if you keep repeating this credit mistake, you will certainly cause great damage to your credit score. Sometimes there is a grace period for late payments, but otherwise if you have made your payments late by 30, 60 or 90 days, there will be a negative remark on your credit report. If you want to avoid this, the best thing you can do is to set up alerts or reminders in your phone so that you do not miss any of your payments or get delayed in making your payments.
3. Maintain Low Credit Utilization:It is important that you do not exceed the limit of credit utilization. If you exceed the limit of credit utilization, you will see that your credit score is lowered.
4. Don’t Follow Low Interest Rates:It is always advisable to stay away from opening accounts at low interest rates. Opening a new account comes under making a hard enquiry and this will lower your credit score.
5. Do Not Apply For Multiple Credit Cards: If you keep on applying for multiple credit cards in a short span of time, then you will see an adverse impact of this on your credit score. Whenever you apply for a credit card, there is a hard enquiry that is recorded beside your name in the credit report. Each enquiry will lower your credit score to some extent. Instead of making an enquiry for the credit card, you should do proper research about it using the internet before applying for it.
6. Do Not Become A Co-signer:When you become a co-signer for the loan taken by someone else, then you tend to utilize your CIBIL Score for the purpose of someone else’s loan. Now, your credit score will get affected if the person, who has taken the loan using your credit score, fails to make any of the payments related to their loan. Once you have cosigned on a loan and someone has made a default of some payment related to the loan, then the negative remark stays for more than 7 years on your credit report. This negative remark is going to lower your credit score and it will be difficult for you to get your loan approved in future.
7. Don’t Avoid Credit Card Usage: If you stop using your credit card, you will be marked as inactive. This will result in reducing your credit card account’s age and thereby increase the credit utilization rate that is related to you. Both these factors lead to a low credit score. It is recommended to spend some amount using your credit cards and pay the bills on time.
8. Avoid Applying for Multiple Loans:You should use a website that will help you in comparing rates so that you apply for the loans after a complete research about it and do not make frequent hard enquiries in the process of getting the best rate of interest for the loans that you need.
9. Do Not Rely On Credit Repair Services:It is always advisable to stay away from credit repair services. The credit repair services claim that they can help individuals in completely removing the negative information from their credit report. However this cannot be done at all. Therefore, there is no point of paying the credit repair services to do that which cannot be actually done.
10. Do Not Miss Monitoring Your Credit:You should always keep a check on your credit so that you do not see any fraud or error in your credit report. If you properly do the credit monitoring, it will help you in staying alert from the identity thefts. It may sometimes happen that you will receive an email stating that you have opened a new account. But the reality is that you have not actually opened a new account. In this scenario, you can get to know the exact reason for the difference between the reality and error.
11. Disregarding the Credit Card’s Fine Print:If you fail to read the fine print of the credit card carefully, then you are making a big mistake that will affect your credit. There are some details of the credit card like the expiry of your low interest rates and the balance transfer costs. These details are written in a small print. Ignoring these details is a big blunder.
12. Always Pay More Than The Minimum Payment:It is always better to make the payment of dues in amounts that are more than the minimum about to be paid. This applies to those individuals who cannot pay the entire amount. Otherwise it is always better to pay the entire amount in full.
13. Avoid Applying for Gas and Fuel Cards: It is always recommended not to apply for gas cards and buy fuel using credit. Gas cards generally have huge interest rates when compared to other cards like Mastercard or Visa Card.
14. Keep Your Credit Card Number Confidential: It is very important that you keep your credit card number confidential and not share it with anybody through an email or phone. If you share your credit information with anybody, there is a high risk of your credit information to be misused. This misuse will cause damage to your credit profile.
15. Do Not Opt For Schemes Of Repairing Credit:If an individual is going through a bad phase of life like bankruptcy, divorce etc. then it is evident that their credit score will be low for a certain period of time. In this scenario, people usually opt for Credit Repair Schemes. But this is not the ideal thing to do as the credit repair schemes usually charge high fees and there is no particular improvement in your credit score too.
16. Do Not Pay Tax Bills Using Your Credit Card:It is not advisable for an individual to pay the tax bills using their credit cards because if you pay the tax bill using your credit card, you will have to pay extra charges which are known as interchange fees.
17. Do Not Spend More On Your Credit Card For Reward Points:It sometimes happens that individuals use their credit cards frequently because they have been informed by the credit card companies that they will be given reward points for spending more on your credit card. It is crucial to be alert while spending each and every penny using your credit card.
Steps to Be Taken to Avoid Credit Mistakes: Taking these steps will help the individuals in avoiding the credit mistakes. These steps are basically meant to help an individual to avoid making credit mistakes and also repeating their credit mistakes.
1. Try not to use your credit card if you cannot make the payment that is due on it.
2. Try to negotiate for making minimum payments that you can manage to pay so that your dues are cleared off every month.
3. You can continue with the second step till you have the money to make the payments a little more than the minimum payments. After the availability of funds, try to make payments of higher amounts.
Eventually it is to be understood that if an individual seeks to have a good credit score and credit history, it is important to maintain healthy credit habits and follow certain guidelines that will be helpful in staying alert and watchful while dealing with credit related transactions.
(Article is Contributed by Ms.Rose Priya for Creditseva. Creditseva is an online platform where individuals can upload their Credit Report (CIBIL) for free and examine their credit health instantly.)