Credit Mistakes to Avoid
Managing your credit responsibility is vital for financial health.
Whether you’re applying for a credit card, a loan, or a mortgage, it’s important to maintain a good credit history to secure the best terms and interest rates. However, it’s easy to fall into common credit traps that stop financial goals being achieved due to a low credit score.
Here are our top the top credit mistakes to avoid and how to prevent them.
1. Neglecting to Check your Credit Report
Monitoring your credit is the best way to not only track your progress, but to ensure there are no errors or fraudulent activity. By neglecting your credit report, you risk impacting your ability to secure credit because of issues left unnoticed. Fortunately, many major credit bureaus offer free credit reports annually, making it easy to stay informed. Regularly reviewing your credit report is crucial to spot potential problems and addressing them before your credit score and financial goals are negatively impacted.
2. Missing Payments
The most influential factor of your credit score is your payment history, and a single late payment can stay on your credit report for seven years. Ensuring you pay bills on time not only boosts your credit score but also helps you in avoiding penalties. The best way to avoid any missed payments is to request payment reminders from your lenders, or better yet, setting up automatic bank transfers. This will ensure your credit growth stays on track.
3. Only Making Minimum Payments
Although it might seem like your debt is more affordable when only paying minimum payments on your credit card, this could cause long-term financial problems. While it does mean your account is kept from falling into arrears, paying only the minimum means you are not making much progress on reducing your balance. In turn, this can result in high-interest charges and a prolonged debt, damaging your credit score. To avoid this, strive to pay more than minimum where possible in an aid to reduce your debt efficiently and keep a healthy credit score.
4. Applying for Too Much Credit
Having multiple credit applications in a short period can damage your credit score as too many inquiries in a short time frame can signal to lenders that you are taking on more debt than you can handle. This will lower your credit score and reduce your chances of getting approved for credit and loans such a mortgage in the future as you appear financially risky to lenders. If having multiple credits is something you deem necessary, it is important to space out these applications at least 6 months apart to protect your credit score.
By avoiding mistakes such as neglecting your credit report, missing payments, making only minimum payments and applying for too much credit, you’ll be in a better position to maintain a health credit score.
General Advice Warning
The information in this presentation contains general advice only, that is, advice which does not take into account your needs, objectives or financial situation. You need to consider the appropriateness of that general advice in light of your personal circumstances before acting on the advice. You should obtain and consider the Product Disclosure Statement for any product discussed before making a decision to acquire that product. You should obtain financial advice that addresses your specific needs and situation before making investment decisions. While every care has been taken in the preparation of this information, Infocus Securities Australia Pty Ltd (Infocus) does not guarantee the accuracy or completeness of the information. Infocus does not guarantee any particular outcome or future performance. Infocus is a registered tax (financial) adviser. Any tax advice in this presentation is incidental to the financial advice in it. Taxation information is based on our interpretation of the relevant laws as at 1 July 2020. You should seek specialist advice from a tax professional to confirm the impact of this advice on your overall tax position. Any case studies included are hypothetical, for illustration purposes only and are not based on actual returns.