1. Paying Bills Late
At some point, we all make a payment late. It is human nature to make a mistake. And, one late payment is not going have a serious impact on your credit rating. However, frequent late payments will. The more frequently and the later payments are made, the more it will have an impact on your credit score – and your ability to qualify for a loan as a result. What are some of the reasons for making a late payment?
I forgot. This is the most common, and the easiest to alleviate by building a habit to sit down and schedule bills at a regular time each month or each payday.
By the time I can pay it, I don’t have enough money. This can happen when we don’t budget our income. It may seem tedious, but scheduling quiet time and sitting down once each month to budget your cash flow will not only help ensure you have the funds to pay your bills on time, but it can help you build your savings and achieve other savings goals.
2. Not Knowing Where Your Money Goes
Speaking of not having enough money, another common mistake is not paying attention to where the rest of your money goes once bills, loans, and utilities are all paid for. Where does the rest of your income go? Do you know how much you spend on miscellaneous items each week? How much do you spend on coffee? Snacks? Sodas? Going out to lunch or out to the movies? By using a budget to track your money, you’ll quickly identify the spending leaks that are sapping your finances.
3. Too Much Credit Card Debt
One of the biggest pitfalls is accumulating too much credit card debt. It’s easy to get into credit card debt because it allows you to buy things now you might not really be able to afford. Often, these purchases are unnecessary and cost us more than if we had waited until we could afford the purchase out of pocket. Not to mention, we typically don’t track our credit card spending since it is not immediately impacting our wallet. This makes it easy to swipe it and forget it. Here are a few tips for getting ahead on credit card debt:
- Take the cards out of your wallet. If you make it hard and time consuming to get a hold of the credit card, this will give you time to think about it before making an impulse purchase.
- Pay more than the minimum. Paying only the minimum can take years – decades even – to pay off your credit card. If you can’t pay the balance in full each month, or if you can only afford to pay more than the minimum on one card or two, consider paying a fixed, higher amount each month on the card with the lowest balance or the lowest interest rate first. Once that is paid off, move to the next lowest. This will allow you to more speedily pay of each card. Another option is to pick the card that is hurting you the most (i.e., largest fees or over the limit) and tackle it first.
4. Not Paying Attention to Your Available Finances
On any given day, it’s important to know how much money you have in your account. And, most debit card and check items do not clear the same day you charge them, though some do. Always be aware of what has not cleared your account as well as your account balance. This will help avoid unnecessary overdraft fees from your financial institution as well as the merchant. Here are some good rules of thumb for managing a checking account:
- Keep a register – either electronically or in paper form. Check off items as they clear.
- Review your account at least once a week to check your balances.
- Read your statement monthly to ensure accuracy. Even institutions make mistakes from time to time.
- Set up email or text alerts for low balances.
5. Living Paycheck to Paycheck
As young adults, we start out with limited income, and as we may live more in the moment, we tend to live paycheck to paycheck early on. This is an important cycle to break as time goes on. If you find you are still in the paycheck-to-paycheck cycle and want to break out of it, consider these steps:
- Create a savings goal. Start small – something affordable that you won’t really miss. Once you get used to saving that amount each month, increase it by a moderate amount. As you continue to get adjusted to saving more, continue to slowly increase it until you are at what is an optimal savings level for you.
- Plug spending leaks. Once you’ve identified spending leaks in #2 above, take steps to reduce, substitute, or eliminate the extra expense.
- Curb impulse spending. If you find yourself reaching for your wallet to spend on a item you don’t actually need, decide to skip making the purchase now. Go home and think on it, and if you still have to have it the next day, go back and make the purchase – but decide what you will give up this month to offset the cost of non-essential purchase.
6. Not Regularly Checking Your Credit Report
The Fair Credit Reporting Act (FCRA) requires that credit reporting companies provide a free copy of your credit report every 12 months. To get your free copy, go to annualcreditreport.com. You can request a copy from each company at the same time and get them all at once, or you can spread them out over the year by requesting one every four months, each time from a different company until you’ve gotten all three.
Once you receive your copy, review it for accuracy. If you discover any errors or suspect fraudulent activity, notify the credit reporting company as well as the applicable creditor in writing through email, certified mail, or online.
- Equifax: 1-800-685-1111; equifax.com
- Experian: 1-888-397-3742; experian.com
- TransUnion: 1-800-916-8800; transunion.com
To learn more about credit reports, scores, and what to look for, visit the Federal Trade Commission’s consumer information site, myFICO.com, or annualcreditreport.com.