In our journey through life, making mistakes is often an invaluable learning experience. We stumble, we fall, and through these missteps, we gain wisdom and resilience. However, when it comes to credit and personal finance, the stakes are significantly higher, and the consequences of mistakes can be more severe and long-lasting.
Experian research shows three in five adults attribute financial mistakes to their limited understanding of credit and personal finance, with these mistakes costing $1,000 or more for 60% of this group. This trend is particularly apparent among younger groups with over two-thirds of Gen Zers and Millennials claiming their inadequate knowledge of credit and personal finance has come at a price. In fact, 29% of Gen Zers and 38% of Millennials report these financial mistakes have cost $5,000 or more.
Unlike everyday mishaps, errors in managing your credit can impact your financial stability, limit your opportunities and even affect your future goals. Avoiding financial pitfalls is crucial because, while we can learn from our mistakes, there’s no need to experiment with our financial health, or funds, when there are tools and educational resources available to help prevent costly errors.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Here are five common credit mistakes people make and practical advice on how to steer clear of them:
They don’t check their credit report
It’s a common misconception that checking your own credit report can negatively impact your credit score. This is not true. You can and should check your credit report regularly. Doing so is one of the best ways to see where you stand from a credit perspective, detect potentially fraudulent activity and identify ways to strengthen your credit history. You can also get a free weekly credit report from each of the three credit reporting agencies at AnnualCreditReport.com.
They miss payments
Nothing will sink your credit scores quicker or more significantly than missing payments. In fact, a single missed payment will stay on your credit report for seven years and will impact your credit scores the entire time it’s there.
Setting up autopay can be a helpful tool to ensure bills are paid on time. If you think you may miss a payment, contact your lender before it happens. They may be willing to work with you or set up payment accommodations to help prevent the negative impact on your credit score.
They carry a balance on their credit card
Many people think they need to carry a balance from month to month to build credit, but this is not true. Credit can be a financial tool; it’s debt that can be a financial problem. While it’s important to show regular activity on your credit cards in order for them to be factored into your credit scores, this does not mean you need to carry a balance. All carrying a balance will do is cost you money in the form of interest you’ll have to pay on the balance.
It’s best to pay off the balances on credit cards in full right away if you can. This is because your utilization rate, or your balance-to-limit ratio, is one of the most important factors in determining your credit score. People with the highest credit scores tend to have utilization rates of less than 10% and more often pay their balances in full each month than those with lower scores.
You never want your balances to exceed 30% of your available credit limit. Keep in mind 30% is not a goal or a target. The closer you are to 30%, the more rapidly your scores will decrease.
They think their credit history only impacts their ability to secure credit
The truth is, credit is a financial tool that can unlock many of the things we want in life — not just access to credit cards, auto loans or things of that nature. Your credit history can impact your ability to get the latest cellphone, qualify for an apartment, lower your insurance rates, utility deposits and more. It’s important to take care of your credit history, so it’s there to work for you when you need it.
They don’t use the financial tools available to them
Today, you can get credit for the bills you already pay with tools that allow you to self-report your payments for qualifying rent or other alternative data, such as cellphone, utility, etc., for the opportunity to increase your credit score.
Mistakes are an often inevitable fact of life, but knowledge truly is power when it comes to financial wellness. By staying informed and proactive, you can avoid these pitfalls and build a strong credit foundation.
Related Content
- How to Increase Credit Scores — Fast
- 5 Ways a Bad Credit Report Can Hurt You
- Why You Should Keep Your Credit Cards Active
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
-
Original Medicare vs Medicare Advantage Quiz: Which is Right for You?Quiz Take this quick quiz to discover your "Medicare Personality Type" and learn whether you are a Traditionalist, or a Bundler.
-
Ask the Editor: Capital Gains and Tax PlanningAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on capital gains tax rates and end-of-year tax planning
-
Time Is Running Out to Make the Best Tax Moves for 2025Don't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
Should You Tap Your Home Equity Before 2026?As borrowing rates and tax law shifts converge, here's what homeowners need to know before pulling equity out of their home.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
21 Money Moves Smart People Are Making Before 2026These steps can help trim your tax bill, boost your savings, lower your health care costs and set you up for financial success in 2026.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
-
Uber Takes Aim at the Bottom Lines of Billboard Personal Injury LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
