While we are bound to make mistakes, you have to realize that you still have to suffer the consequences. We will learn from these mistakes – there is no doubt about that. But that does not mean it will not make our lives more difficult.
There are a couple of money problems that are caused by poor financial habits. These problems will cause you a lot of stress. Sometimes, it might even start a fight within the household. If you want to keep this from happening, you just have to ensure that you will avoid making financial mistakes in the first place.
Credit mistakes you should never commit
There are many mistakes that you can commit that can jeopardize your financial position. Some are more serious than others. However, there are a couple of credit mistakes that you should never commit. Why? Because there is actually no excuse to do them. A mistake is okay if it was an accident. It becomes okay if you did what you can to prevent it but there are outside forces that forced you to commit it. But if you made the mistake because you were too irresponsible, then that is unacceptable.
So what are these mistakes?
Forgetting your bill payments
This actually depends on the reason why you missed the payment. Did you forget about it? If yes, that is not acceptable. You have a lot of apps that will remind you of an upcoming payment. But if you missed it because you cannot afford to pay it, then you have a bigger problem in your hands.
According to statistics, 1 out of 4 adults is not able to pay their monthly bills completely. When they fall short, where do you think they get the money for the difference? Yes. They borrow money. It is important to identify why you cannot pay your bills on time. If lack of funds is the problem, that is still not an excuse to skip your payments. You have to talk to your creditor or lender and negotiate for better terms. It seems intimidating but you might be surprised that they are willing to cooperate as long as it ends up with you paying the debt. They would prefer that over you not paying them anything at all. You can negotiate for a lower monthly payment term, deferment, a lower interest rate or even debt settlement.
Putting credit card debt at the bottom of your priorities
When given a choice, credit card debts are placed at the bottom of the priority list. Most people think this is the wisest move. When it comes to bankruptcy, these cards are most likely to be discharged if your liquidated assets cannot cover all your debts. However, not paying off your credit card debt can be very destructive when it comes to your credit score. But that is not the main danger here. You are also significantly increasing your debt. These credit cards are notorious for having high-interest rates. When you miss one month of payment, that interest will be used to calculate the finance charge that will be added to your debt balance. The higher the interest rate, the bigger the finance charge will be. If that is not bad enough, the late payment penalties and charges will also make your balance bigger. So just make the sacrifices and cut back on expenses so you can pay off your credit card.
Failing to scrutinize your bills
Most of the time, people look at the total amount on their bills and then toss it aside. They fail to scrutinize the detail – failing to check if what they are paying is correct. This might seem like a chore but you have to make time to go through what you are paying on your billing statement. You might be paying for a charge that you did not make. This is a waste of money that you have to avoid. If you see errors, you have every right to dispute that entry. Not only that, you may want to organize your bills and make sure you file them properly. These documents can be used in the future for any disputes or something similar.
Neglecting their credit reports
This is one of the most common credit mistakes by consumers. You should never stop monitoring your credit report. You really have no excuse because you can get a free copy of your credit report through the Annual Credit Report website. Once you get a copy of your report, you have to make sure that the entries are all correct. Doing this will bring a lot of benefits. You can immediately dispute any wrong entry. Not only that, if you had been a victim of identity theft, you can report it immediately so you will not be left paying for a debt that you did not borrow in the first place. The earlier you alert the authorities about it, the less responsibility you have to take on for that crime.
What happens when you have too many credit errors
To motivate you to avoid committing credit mistakes, you probably have to think about why you need to avoid them in the first place. What are the consequences of these errors? There are three things that can happen if you commit any one of these mistakes.
Your credit gets ruined
First of all, your credit score will suffer. Late payments or underpayments will be considered irresponsible behavior on your part. That will leave a negative mark on your credit report and it will pull your credit score down. When this happens, several things will also happen that can compromise your financial position.
You waste money
Another effect of your credit mistakes will be wasting money. When you pay your dues late because you forgot or you just did not prioritize some of it, that will incur penalties. That is an additional amount that will be added to your expense. And if the debt you did not pay is the balance of your credit card, you will have to deal with the finance charges too.
You lose financial opportunities
Finally, any credit error that results in a lower credit score will make you lose financial and credit opportunities. Your credit report contains your personal information and more importantly, how your bills are paid. If creditors and lenders see that you have a bad credit behavior, they will hesitate to lend you money. It will make things difficult to get a loan to buy a house or a new car. In case you do get approval, you will be getting a higher interest rate for that loan. That will make any purchase more expensive.
How to stop making mistakes with your credit
After everything that you have read, one question remains unanswered. How can you avoid committing these credit mistakes? You want to avoid having these financial mistakes come back to haunt you. Here are three things that you can do.
Own up to your debts
Start by feeling responsible for your debts. This is your responsibility. Whether you can afford to pay it off or not, nobody is at fault but you. Unless you have a co-signer, this debt is your burden and you should pay it off. Once you have owned up to the debt, you will find the motivation to pay it off. At the very least, you will make sure that you will not commit credit mistakes.
Know what you are getting into
Did you know that in the UK, 22,000 people bound themselves to 1,000 hours of community service without knowing it? Do you know why? Because they did not read the terms and conditions. Before going into any debt, you have to make sure that you read the fine print. Most of us find this part hard to read and understand – which is probably why we tend to skip over it. This is a practice that we should stop doing. You never know what you are signing up for. This knowledge will help you know what you should do to avoid penalties and unnecessary charges.
Finally, you have to make sure that you are organized. This means you know what you owe and your financial capabilities to pay it off. When something unexpected happens, you know how to rearrange your finances so you can accommodate it. This will keep you from overspending and from making credit mistakes.