Avoid These Common Financial Mistakes
May 1, 2015 / Sara Davis / Personal Finance Mistakes and Bad Habits to Avoid
Everyone makes financial mistakes, and it is harder to avoid them than one might think. However, most mistakes people fall into are the same that others have made or make on a daily basis. You probably know what they are and hear about them all the time, but like most things, solutions are easier to talk about than actually implement into practice.
Not all financial mistakes can harm your credit. For instance, while spending too much for a cup of coffee every day is not in the best interest of your bank account, it probably won't keep you from making your credit card payments on time. If it does, then it is time to stop. But, there are some mistakes that will affect your credit score and you might not even realize how often you are doing it.
Consider the following list of mistakes to avoid to protect your credit:
"Not all spending mistakes harm your credit, but it's important to be mindful of those that will."
See, you knew this was coming! However, that doesn't make it any less important. If you have a credit card balance, or a monthly bill is due, pay it off every month. Don't mess around by telling yourself you'll get it all next month, because next month there will be more interest and you will have a late payment affiliated with your credit report. While one late payment is not a big deal, a habit of it will not look good. And the only way to not get into the habit of making late payments is to not let it start in the first place. According to U.S. News & World Report, having late payments on your record can give your score just enough of a downward push to make you unattractive to future lenders. Why take the chance?
Closing credit card accounts
This sounds crazy to a lot of people who assume the best way to not charge items to their credit card is simply by closing the account. This is not a good idea, as noted by Credit.com. Why? you ask. Because if you don't use a particular credit card and are willing to close it, then it probably has a zero balance. Well, a zero balance on a credit card puts you in good standing. While you may have other cards that have outstanding balances, if you cancel one of the cards you don't use it will disappear from your history, leaving only the outstanding debt. Instead, Credit.com recommends that you keep your credit card accounts open, even if you don't use them. Just leave them open and let that balance stay at zero. Additionally, this will add length to your credit history. And a good history with a long life is less risky to lenders, which puts you in a good spot.
Maxing out your credit cards
Even if you are making monthly payments on time, having a maxed out credit card demonstrates to lenders that you can't keep your spending under control. You don't want to give this impression. According to Generation X Finance, this type of spending behavior can make a lender distrust you. Keep your credit balance low. There is certainly nothing wrong with having an existing balance, but make sure you are on top of it and it is not out of your reach to pay off.
While some credit tricks are easier than others to live by, it is important to develop spending habits that will keep your credit in good standing. Be smart with your credit card because once it gets away from you it can be difficult to reign back in.