Five Common Credit Mistakes and How to Avoid Them
Mistakes are an often inevitable fact of life, but knowledge truly is power when it comes to financial wellness.
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.
-
The New Rules of RetirementPopular guidelines about how to save, invest and spend need to be updated and personalized to ensure you'll never run out of money.
-
Humanoid Robots Are About to be Put to the TestThe Kiplinger Letter Robot makers are in a full-on sprint to take over factories, warehouses and homes, but lofty visions of rapid adoption are outpacing the technology’s reality.
-
A Value Focus Clips Returns for This Mairs & Power Growth FundRough years for UnitedHealth and Fiserv have weighed on returns for one of our favorite mutual funds.
-
How Drones Can Affect Your Insurance CoverageHow insurers are using aerial imagery to assess homes, the backlash from policyholders and how state regulators are trying to rein in the practice.
-
My First $1 Million: Risk Management Consultant, 55, Marlborough, Mass.Ever wonder how someone who's made a million dollars or more did it? Kiplinger's My First $1 Million series uncovers the answers.
-
Divide and Conquer: Your Annual Financial Plan Made Easy, Courtesy of a Financial AdviserOverwhelmed by your financial to-do list? Split it into four quarters and assign each one goals that connect to the time of year. It could be life-changing.
-
$100,000 Travel Emergencies You Don't See Coming and How to PrepareTravel emergencies can get expensive fast. Here's how to protect your wallet from the worst case scenario.
-
The Financial Details Every Couple Should Share (Before There’s an Emergency)From passwords to policy numbers, having shared access to key accounts can prevent financial chaos when life throws a curveball.
-
I’ve Played 1,300+ Golf Courses: These Are the 4 on My 'Must-Play' List for 2026These four luxury golf courses offer an extraordinary experience for players this year.
-
Your Post-Accident Survival Guide, From an Insurance ExpertAfter a car accident, stay calm and document everything to preserve the facts. Remember: You don't have to solve the problem — that's why you have insurance.
-
How Prices Have Changed in Trump's First YearTrump campaigned on bringing prices down for Americans. Here's where prices stand one year into his second term.
