10 Common Credit Mistakes To Avoid in 2024

Today credit cards are powerful financial tools, but a few common slip ups can quickly turn them into costly obligations. From missing payments to overspending, these seemingly small credit mistakes can spiral into serious financial troubles if not addressed. You can avoid these credit card traps as simple slip ups could wreck your financial health.

Let’s look into this blog for some tips on the common mistakes on credit reports that come in the way of fast and easy credit access.

1. Ignoring or making mistakes on your credit report

You must check your credit report periodically to track your progress but also identify if there are any credit mistakes and address them before they inflict any damage. Not checking your credit card regularly will only make you miss out on warning signs of greater issues weakening your credit score.

With free credit monitoring service, you can know your FICO score and obtain a credit report through the online portal of AnnualCreditReport.com. from all three credit bureaus. This will allow you to check your mistakes on credit report as and when you want. Now that you have a credit report at hand, you can maintain a pulse on your credit health for issues that normally need to be recognised like high balances, missed payments, or accounts you don’t know of.

Missed payments can result in significant financial consequences like costly late fees, increased interest rates, and a considerable drop in your credit score that might affect your ability to secure loans or credit in the future.

2. Paying credit or loan payments late

Making payments on time needs a bit of effort like reminders from lenders or an autopay option to your bank account is better as this takes some worry off your heads. While you could make a credit mistake of not paying on time once, missing one payment by 30 days or more can affect your credit score with serious financial consequences because late payments normally remain on your credit reports for seven years. Even if you start paying on time in the future, your credit score shall not change much as the impact stays over time.

3. Choosing the 'Minimum Payment' Option

You may feel a bit relieved by seeing an EMI alert mentioning a minimum payable amount on your credit card thinking it is a bit affordable, but the impact increases your credit scores greatly. The interest rate can cost you more money in the long term than paying up your debt monthly. Since you end up carrying a high balance on your credit card, your credit utilisation ratio increases which is the percentage of your available credit at a given time. A credit utilisation ratio above 30% can begin to dip your credit scores, so the lower it is, the better. If you have a high credit utilisation ratio, prioritise paying down your credit card debt and consider other payment methods until you achieve your goal.

4. Pitfalls of Applying for Multiple Credit Lines at once

Whenever you apply for credit, you must go through a long inquiry process with the lender to check if your credit report is appropriate for your loan application. If you apply for multiple loans in a short time, you may be viewed as a riskier borrower. So to avoid damage to your credit profile you can conduct thorough research to find the credit cards that match your eligibility and apply for appropriate ones.

5. The risk of excessive credit

Using a loan for higher education may be unavoidable. But if you use up the educational loan for non-educational or non-emergency purchases, balancing your budget and maintaining a payment schedule would be challenging.

Only apply for credit when needed instead of unnecessarily stretching yourself financially. This can avoid any build-up of interest on overdue payments.

6. Closing credit card accounts

If you close your credit card account in good condition which means you’ve hardly missed a payment, the credit history shall remain on the credit reports for 10 years. But on cancellation of a credit card, you stand to lose all available credit immediately which may cause the credit utilisation rate to increase and impact your credit score.

So, think before you consider closing your credit card. Although you make on-time payments in the future, you shall not benefit from them. This might not affect your credit score but it could delay your credit card growth. In a way, the potential hit to your credit card could be worth it as that might be a reason for not overspending and giving in to temptation in the future. 

A recommendation is that if you have to close accounts, it's better to try to close your newer accounts first since older accounts have longer credit histories and 15% of your credit score is a reflection of how long you have used credit.

7. Settling into a rut

Managing money matters requires a regular effort to check your accounts and be proactive about saving and paying debt besides finding opportunities to ensure an efficient cash flow.

One can become complacent especially if you have a higher income and this might be a reason to miss out on negative trends and poor credit habits. It will be detrimental in the long run to manage your finances. It's ok to take a break once in a while and it can be a good idea to automate your finances as much as possible so that money management does not wear you out.

8. Co-signing loans without proper research

You may co-sign a loan for close friends and family to help them but this can become tricky for you sometimes. In case the borrower misses or delays their payments, your CIBIL score will get hit negatively for their delay or poor credit behaviour. So, you need to be cautious when signing any loans.

9. Neglecting to Check Your CIBIL Score and Report Often

Being proactive in monitoring your CIBIL score keeps track of your progress and also alerts you of any potential threats and problems before they do any damage to your account. Subscribing to a CIBIL plan free of cost allows you to check your CIBIL score and report as and when you want to. There are a lot of additional features that can be beneficial to keep a check on your CIBIL score. Accessing your free CIBIL score and report once a year at https://www.cibil.com/freecibilscore will ensure a safe financial future.

10. Failing to alert creditors if you changed names

While this may seem trivial, not notifying creditors of a name change could result in credit report inaccuracies. Bank accounts, credit applications and other documents that become part of your credit history are integrated into your report through many different ways, some of which do not require identification like your social security number to be considered valid.

It may seem very inconsequential to just alert creditors of a name change but this might result in your credit report inaccuracies. As part of your credit history, bank accounts, credit applications, and other important documents are integrated into your accounts differently and you may think that those do not need identification like your social security number then why do other changes need to be alerted?

Please understand that you have put in a lot of effort to build a reputation of reliability and trust with your creditors and would not let small errors, inaccuracies, or ill-informed decisions ruin it and affect your credit score.

Conclusion

You must be aware that building credit takes a long time and so to maintain a profound credit report score, some habits need to be developed that can help you to avoid credit mistakes. Paying your bills on time, keeping your credit card balances low, and avoiding debt can help you enjoy better financing and a secure future.

FAQs

Q1. What are considered some of the common credit history mistakes?

Ans. The most common credit report errors could be:

• When accounts are too old
• accounts with the wrong balances
• accounts with the wrong payment history, mixed credit files, identity theft accounts, and being mistakenly reported dead.

Q2. How to manage credit responsibly without mistakes?

 Ans. Here are some useful steps:

• Borrow only when you need
• Clear your credit card bills in full every month
• Don't neglect your service agreements
• Budget everything wisely
• Try to use 30% of your available credit limit
• Concentrate less on your credit score but rather develop positive, lifelong habits

Q3. Is it best if debt could be avoided?

Ans. It pays to pay off debt. Saving is very important to pay off non-deductible, high-interest debt, like credit card balance, as soon as possible. Paying off debt from savings is the most cost-effective way to be debt-free over time.

Q4. What is the significance of a credit plan?

Ans. A credit plan with a mission statement can help your enterprise achieve some goals, including a reduction in bad debt and write-off. It should aim at improvements in sales to cash payment cycles and improved profitability.