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My biggest credit mistake and how to avoid it

Have you ever made a credit card mistake? Maybe you accidentally missed a credit card payment. Or maybe you’ve maxed out your credit card. Many of us make some sort of credit mistake in our lifetime, whether we lose track of a payment due date or charge a little more money than we can afford to pay.

Fortunately, many of these common credit mistakes are easy to fix and even easier to prevent.

If you accidentally forget to make a credit card payment, for example, you can contact your credit card issuer and explain the situation. If you make a new credit card payment quickly enough, the missed payment might not even affect your credit score. And you can avoid future missed credit card payments by setting up automatic credit card payment.

What about the biggest credit mistakes? Some credit errors are less common, but more likely to cause long-term credit damage. If you make any of these credit mistakes, you run the risk of increasing your debt or lowering your credit score.

“Credit mistakes can be small or big, once or a slow leak each month, simply eating away at your wealth,” says Kari Lorz, Certified Financial Education Instructor and Founder of Money for the Mamas. “My credit mistake was the last one, because I didn’t even know I was making it. I could have done things differently if I had known. That’s why educating yourself about personal finance is so important.

With that in mind, we asked two financial experts to share their biggest credit mistakes. And if you keep reading, I’ll also share my biggest credit mistake.

Make only one debt payment per month

Kari Lorz’s biggest credit card mistake involved a revolving credit card balance. “I was spending more than I was making, so I couldn’t pay my credit card bill in full each month,” Lorz told us. “I got paid twice a month, so I saved my money all month, then paid what I could when the bill came.”

Lorz could have paid off her debt faster — and saved a lot of money in interest charges — if she had made multiple credit card payments each month. “I hadn’t even thought that instead of making one payment, I could make two separate smaller payments in accordance with my pay cycle and significantly reduce the amount of interest I was paying.”

How can you save money by making multiple credit card payments per month? It has to do with how credit card interest is calculated.

“Credit card interest accrues daily, so your daily balance determines how much interest you’ll pay,” says Lorz. “I have significantly reduced my interest charges by reducing my balance twice a month with smaller payments.”

If you have credit card debt or a revolving credit card balance, making more than one credit card payment per month is one of the best ways to pay off your balance as quickly as possible. If you get paid twice a month, for example, try making a credit card payment each time you get your paycheck.

Want one more reason to consider multiple monthly payments? Many people who make multiple credit card payments each month not only save money on interest charges, but also reduce their credit utilization rate, giving them the opportunity to improve their credit score. credit while repaying their debt.

Co-sign a car loan

“My biggest mistake was co-signing a car loan for a friend,” says Nishaea Richardson, financial coach and owner of She’s the Budget Guru. “I was the person who wanted to help everyone, but at the risk of my own finances.”

The first time Richardson co-signed a car loan, she didn’t quite understand what she was signing up for. “I had no idea that by co-signing, I would also be responsible for the vehicle in the event of non-payment, and the vehicle would also affect my credit.”

Even though Richardson’s friend stopped making the payments on the car—making Richardson financially responsible for the entire loan—that didn’t stop Richardson from co-signing a second car loan to help out another friend. “Yes, I made that mistake not once, but twice!” she says.

After the first friend failed to meet his financial obligations, Richardson tried to make the car payments herself. But when she could no longer afford the loan, the vehicle was repossessed. This meant that Richardson’s credit report now included a derogatory mark, which had its own unintended consequences.

“I was stuck with a repossession on my credit for seven years,” Richardson says. “This repossession prevented me from financing my own vehicles without a co-signer because I was now considered a risk by lenders.”

Want to avoid making this kind of major credit mistake? “Don’t co-sign a loan for anyone except your spouse,” advises Richardson.

Whether you’re co-signing for a family member or a friend, make sure you know how to protect yourself as a co-signer and how co-signing an auto loan could affect your credit.

Going into debt without a plan

We’ve all made credit mistakes — even me! In my early thirties, I started charging my credit cards more than I could afford to pay at the end of the month. Like many people, I kept telling myself that I would pay off the balances one day, but it took me a few years to get serious about paying off my debt in full. During this time, I paid a lot of extra money in interest charges.

There are certain times in life when avoiding credit card debt is difficult. The first time I carried a balance on a credit card, I was underemployed and just trying to get through the month with enough money at the end to pay my rent. However, I quickly started justifying all sorts of purchases because, wait, I was already in debt. What could a few extra bucks hurt, right?

Well, those dollars quickly increased. I ended up with $14,000 in credit card debt.

If I had known how much my credit card debt would cost me, would I have made all these purchases? Probably not. Some of my credit card charges were for essentials like groceries, but I also put non-essential purchases on credit like movie tickets and restaurant meals.

While everyone deserves a little fun once in a while, it’s important to think about what your purchases might cost you in the long run, especially if you’re planning on making an impulse purchase that you know you can’t. not allow you to repay properly. a way.

In my case, my biggest credit mistake was not getting into debt. It was giving me permission to increase my debt without having any plan to pay it off. Once I had a plan in place, I was able to pay off my debt in full. But I could have saved a lot of money if I had made this plan as soon as I started carrying a credit card balance.

The bottom line

The more you know about personal finance, the less likely you are to make the kind of credit mistakes that could have serious long-term consequences. Before you apply for a credit card or loan, for example, make sure you understand the terms and interest rates — and before you make a purchase, make sure you have a plan for paying it back.

If you make a credit mistake or two along the way, don’t worry. Many credit mistakes are easily fixed, especially if you’ve already taken the time to develop responsible financial habits that can help you pay off your debts and improve your credit score. Your credit history may already be part of your credit report, but your credit future has yet to be written!