Learning from past mistakes can help build stronger credit
No one’s perfect. And while it’s true, according to Fair Isaacs & Company, that 13% of the credit wielding population has an 800+ credit score, the vast majority of us fall prey to simple mistakes. Common mistakes can be avoided—but only if we identify them and resolve not to make corrections. Along the way, smart credit users evaluate their mistakes, learn important lessons, and build stronger credit.
Common Credit Mistakes
Failing to pay credit card payments on time every month is a critical mistake that too many Americans let themselves make. And the consequences are never pretty. Credit borrowers who don’t meet their monthly deadlines are charged steep late fees, risk watching their interest rates skyrocket, and loose necessary points on their credit score. According to FICO, timely payment of debt counts for 35% of your credit score. Many creditors and banks offer auto payments for consumers who have trouble paying on time.
Additionally, many well-intentioned people close credit accounts that they don’t use regularly. While this may seem like healthy debt management, closed accounts (particularly accounts with good credit history) impact credit scores by diminishing credit/debt ratio. Additionally, many consumers fail to consider the interest rates when they apply for a creditcard. If you pay your balance in full each month, this won’t be a problem. But in the event of an emergency, a low interest rate makes all the difference.
Lessons learned from credit card debt management
If asked the most important lesson they’ve learned about debt management when it comes to credit cards, many consumers in the 700+ quartiles would respond by advising others to pay off their credit cards in full each month—particularly cards with high interest. Additionally, keep the total number of your cards you own to a minimum. Many credit-healthy consumers rely upon 3 major credit cards and one or two “store” credit cards. For the vast majority of people, there is simply no need to have more than five cards.
Another helpful tip is to avoid cash advances. An integral part of debt management is the decision to use legitimate income as opposed to credit when it comes to supporting your lifestyle. Emergencies arise. But otherwise, leave cash advances alone. And finally, carefully review your credit statements each month and request a free copy of your credit report from the national credit bureaus at least once per year. Staying on top of your game through debt management can put you on the road to successful credit and financial freedom.
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