One of the biggest lessons I learned in my college years and early 20's was the importance of my credit score. To be honest, I grew up really naive about personal finance. Everything was very black and white – I either had money to buy something or I didn't. The end.
One day when I was in college and shopping at the mall, one of the cashiers at Express (ladies, you know you shopped there!) asked if I would be interested in opening a credit card. I have never even really thought about it. I can't even remember what the deal was, I think I saved like 30% off the purchase or something. So I said sure!
Five minutes later, the girl told me I was approved, that I must have great credit and was given a $750 credit limit. Yippee! My first credit card!
While it was exciting to have this magical credit, I didn't really think too much of it. When I got my first bill statement in the mail, I went back up to the mall to pay it off. Did anyone else used to do this? I am dating myself, but online payments didn't exist back then. This was also a great marketing tactic to get me to shop around after paying my bill.
Fast forward to a few years later. I had just graduated college and at my parent's suggestion, was going to buy my first home. The mortgage process was easy. I had perfect credit, my only debt was my car loan, and I qualified for an amazing loan. I couldn't believe how easy everything was working out.
I owe a lot of this to my parents. My mom always preached the importance of having a perfect credit score and why I had to pay my bills on time.
Unfortunately, this is not the case for everyone. I have heard horror stories about people who have bad credit. Having a low credit score can really affect your whole life. It can prevent you from getting a car loan, buying a home or refinancing. You can also pay more in fees, which makes it harder to save money.
How to get your credit score
I monitor my credit score on a monthly basis. I'm really organized and always make sure to pay my bills on time, track my mortgage payment and review my credit card statements.
In the next year or so, I have plans to purchase a new car (or new to me) which will most likely be financed. Because of this, I am making sure my credit report is accurate and like to monitor my score. Because I have found a couple mistakes on my report in the past, it's important for me to make sure nothing crazy is happening.
One of the best ways to track your credit is Credit Sesame. I like using them because it's free and I don't have to give them my credit card, unlike some other companies out there. I can see my score each month and use their tools to see examples of loans/rates depending on what my credit is. It's crazy how much money you can save on a loan the better your credit score is!
Here are 7 dumb ways you can ruin your credit
Miss a credit card payment
If you forget to pay your credit card payment, don't wait the following month to pay it off. Chances are you will have to pay a late payment fee, which can be anywhere from $25 – $35 or more. More importantly, your credit score can take a hit. It will show that you were 30 days late on a payment.
The best thing you can do is contact your credit card company right away. Most companies will waive the fee the first couple times if you forgot to make a payment. Let them know if you are having trouble making a payment. Often times you can select a new date your credit card payment is due. For example, if your credit card is normally due on the first of the month, ask for the date to be switched to the fifteenth if it is financially easier for you. Many companies are happy to do this as they want your business.
Maintain too high of a credit card balance
Speaking of credit cards, just because you have a limit doesn't mean you should use the whole limit. Did you know your credit score can vary if you actually use all of your credit versus only using some of it?
Try to only use 50-60% off your actual limit. Otherwise, it looks like you are spending too much. It's ridiculous, but true.
Don't throw out that ticket
Have you ever gotten a parking ticket and though it was total ludicrous? Instead of taking it seriously, you just crumpled it up and threw it out?
I did Don't do that.
If you ignore the ticket, it can be sent to a collection agency which will ding your credit.
Not opening your mail
These days it can be tough to tell what's junk mail and what isn't. It can be tempting to throw out what appears to be junk mail, but take the extra time to open those unmarked envelopes.
For example, one of my credit card statements used to come in a really weird envelope – one of those ones with perforated edges that you tear off on the sides. I tossed it out because I thought it was junk. After speaking with my credit card company who assured me they had sent the statement to the correct address, I became much more aware of my mail.
Sure enough, I received a similar envelope the following month and it was my credit card statement. If I had chosen to ignore this and not follow up with my credit card company, my credit could have seriously been affected.
Cosigning a loan
Cosigning a loan can go one of two ways – either extremely well or extremely poorly.
When I was in college, my parents helped me purchase a new car. Because I had no income and was a college student, there was no way I could have qualified for a car loan. My parents took the responsibility of the loan and were co-signers. This worked out well because it helped me build my credit score and establish credit history. I eventually took over payments once I got my first real job after college.
On the other end of the spectrum, it would be bad judgement to cosign a loan with someone who is not responsible, does not have a good work ethic or is always late paying their bills. It's unfortunate, but some people will take advantage of their cosigner. You do not want to send up having to pay for someone else's loan because you were trying to be nice!
Applying for too many credit cards
Just because you get approved for one credit card does not mean you need to start applying for more credit cards. Take the time to do some research and figure out what kind of credit card would be best for you. There are so many credit cards that offer different reward programs that it is worth spending some time finding one that meets your needs.
If you have been turned down for a credit card, wait three to six months before applying for another credit card. Otherwise there is a good chance you will get denied again. Every time you apply for a credit card (or a loan), your credit report is run. While this mildly affects your credit score, you will still be dinged. Work on building your credit back up before applying for another credit card.
Purchase something you can't afford
It's easy to want to live in an expensive house or drive a nice car. But can you afford it? Although you might get approved for a certain amount, is it really in line with your budget? The last thing you want is to commit to a high monthly payment that clashes with your budget.
Don't forget, your loan will be visible on your credit score. If your loan is too big compared to your income and other debt, your credit score could go down. The credit report could reflect that you have a lot of debt compared to what your income is. This can impact your credit score for quite some time until you have paid off a large chunk of your loan.
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Are you confident with your credit score? Have you ever found mistakes in your credit report?
This post is sponsored by Credit Sesame, but 100% written by me!