As a young person, it can feel like you have the world at your fingertips. But while there are many benefits to having good credit, it’s important not to take your credit for granted. Here are some common mistakes that young people make when it comes to managing their credit and how you can avoid them:
Assuming all credit is good credit.
There’s a lot of confusion surrounding what constitutes “good” and “bad” credit. The reality is that your score isn’t an all-or-nothing measurement: it’s more like a scale that gives lenders an idea of how risky they should consider lending to you based on factors like payment history, debt load and length of time on file with each creditor.
Since there are different types of loans (mortgages, car loans, student loans) with different requirements for approval and interest rates, what constitutes good in one situation might not be so great in another.
If you’re taking the services of a smart financial planner in Sydney, they’ll make sure you never miss a payment. When you fail to make a payment on time, the consequences can be serious. If you don’t pay your credit card bill in full each month, the card issuer may charge late fees and increase the interest rate on your account. It could even cancel your credit card or send it to a collections agency.
It’s important that you make sure that you always pay your bills on time, but sometimes life gets busy and we get distracted—and that’s OK! You can avoid this mistake by setting reminders for yourself (like calendar alerts) or using an app like Due for reminders about upcoming bills.
Not paying down debt.
The first step to getting out of debt is to pay it off. Not only is this wise for your credit score and budget, but it can also significantly reduce the amount of interest you’re paying on that debt.
When it comes to paying down credit card debt, there are several methods that work well. In general, though, you should focus on paying off the card with the highest interest rate first (or second).
This way, by the time you’ve paid off one card’s balance completely and moved onto another one or two cards at a lower rate of interest, all those remaining cards’ interest rates will be lower than what they were originally at when they were charged higher rates because of late payments or other issues associated with being over-leveraged in debt.
Not checking your credit report.
Checking your credit report is important for a few reasons. First and foremost, a good credit score can help you get better interest rates on loans like car loans, student loans and mortgages. If there are mistakes on your credit report, it could be holding you back from getting these loans at the best rate possible.
You should check your credit report at least once per year to make sure that everything is accurate.
Going wild with credit cards.
While credit cards are a great way to build up your credit history, it is important to use them wisely. A good rule of thumb is to only charge what you can afford (and pay off) every month, which means avoiding interest payments.
One mistake many people make in this regard is getting several credit cards at once and then not paying the bills on all of them at once. This can result in financial problems and damaged credit scores if one card doesn’t get paid on time or if a late payment ends up costing high fees or interest charges.
Don’t be afraid to make mistakes. The key is to learn from them, so that you don’t make the same ones again. In addition, focus on the big picture of your finances and keep yourself grounded in reality when it comes time to make decisions about any type of credit.