Five Simple Credit Mistakes That Could Cost You Money

Sometimes it seems like managing a clean credit profile is an impossible task. With the number of items that factor into a person's credit score, how are you supposed to keep it all balanced? At PacRes, we recognize that credit profiles and scores are complicated, but we're here to help make this topic easier to navigate*. Your credit profile and score can impact various things in life, such as interest rates, credit card applications, background checks, whether or not you qualify for a job or rent approval, even security clearance levels for yourself and other family members.

Mistake #1: Not taking advantage of your free annual credit reports.

Federal law allows every consumer a free copy of their credit report every year from each credit reporting company. There are three credit reporting companies, Experian, TransUnion, and Equifax. You can request the report from all three companies at the same time, or request them individually and space them out over the year. Your free report will not include any credit scores, but it will contain all the other information that shows up on your credit records. You should review your credit report carefully to catch any signs of identity theft, incorrectly reported information, or derogatory accounts. All of these things can impact your overall credit profile and score, which could cost you money because poor credit history tends to lead to higher interest rates or less favorable credit terms. It's a big mistake to ignore your free credit report.

Solution: Access your free reports up to three times a year (once per bureau) at annualcreditreport.com.

We recommend spreading out your credit reports over the year by pulling from one bureau every four months. This schedule gives you time to review a report, remedy any negative issues you catch, and then pull your next report a few months later to ensure the information is updated and reporting correctly.

Mistake #2: Not accessing your credit scores for free as often you can.

This mistake goes hand in hand with the first one. Your free credit report will not have your credit scores included on it, but you have several potential resources where you can obtain your credit score for free. You might already be aware of one or more of your credit card companies offering a free credit score service. Your bank might also offer this service. Most credit scores range from 300 to 850, the higher the score, the better. You don't want to be surprised by a low credit score when you apply for credit somewhere, so make sure you are periodically aware of your general credit score.

Solution: Find companies that will provide your credit score for free.

Even if you don't have access to your score from any of your credit cards or banking institutions, there are still other free sources available for you to periodically check your credit score. Avoid the mistake of ignoring your free credit score! The CFPB provides a list of companies that state they offer free credit scores. This list has different categories:

• Credit Card Issuers that stated they offer free credit scores to certain customers.
• Companies that stated they offer free credit scores to customers using some of their other financial products besides credit cards.
• Nonprofit credit and financial counseling providers that stated they offer free credit scores to their clients.
• Companies that stated they offer free credit scores to the general public.

You should always keep in mind that your credit score will vary slightly from each source. Lenders will pull your credit report and scores when you apply for credit, so your credit score may be slightly different between the lender's credit report and what you've been able to access for yourself.

Mistake #3: Paying only the minimum amount due each month.

When you pay only your minimum amount due each month, you wind up paying a lot more toward interest than what you originally owed on each card's balance. This excess interest costs you money because those funds could go towards other expenditures, or setting up an emergency fund. Don't make the mistake of only paying your minimum credit payment each month.

Solution: Pay the full balance each month whenever possible.

When you pay your full balance each month, you still maintain a good credit profile, because the card is still active. You save yourself money because you're not paying interest on a balance carry over from month to month. If you can't pay the full balance each month, be sure to pay as much as you can, so that the remaining balance is as small as possible, to avoid racking up larger interest charges.

Credit Mistake #4: Signing up for a loan without comparing your options.

Understandably, most people don't have thousands of dollars sitting around to use at any given moment. Most of us need a loan for some of life's most impactful moments, like getting married, buying a house, a car, etc. Applying for a loan is not a credit mistake, but accepting a loan without comparing terms and loan types among all your options can be costly. The two main types of loans include secured and unsecured. Secured loans have collateral, which means you have to put something up (a valuable asset like your car or house) to guarantee you'll repay the loan. If you do not repay the loan, the lender can seize that asset. Unsecured loans don't have collateral. The lender is taking a risk that you might not repay the loan, with no asset to compensate for it. Since unsecured loans have higher risks, they typically have higher interest rates.

Solution: Ask questions and consider your options before you commit to one specific loan.

Once you've determined what type of loan you want, you should get quotes and compare your options before committing. You should try to get at least three quotes so that you can compare the terms of each loan. You'll want to look at the type of loan, interest rate, Annual Percentage Rate (APR), monthly payment amount, and fees. Make sure you completely understand the terms of each offer before you decide which loan to use.

Credit Mistake #5: Paying your bills late

Paying your bills on time sounds like a no-brainer, but let's face it--at some point in life, we've all been there. You have a bill due on Wednesday, you don't get paid until Friday, you're running low on gas, and you only have enough money to cover gas or the bill. Is it a credit mistake to choose the gas and ignore the bill for two days? The impact on your credit record should be non-existent, as credit bureaus don't consider a payment late until it is 30 days past due. However, you'll probably see an impact on your wallet, in the form of a late fee. Many creditors automatically impose a fee when your due date passes without a payment posted. If your payment goes 30 or more days past due, that will stay on your credit report for seven years after the account's initial late reporting date.

Solution: Pay bills on time, and ask about reversing a one-time late fee.

The best solution is to pay your bills on time every time. This strategy will help you avoid accruing any late fees or derogatory impacts on your credit record. However, if you have an otherwise acceptable payment history, you should try a request to waive the late fee. Not every company will be willing to do so, but it is worth the time to make the request. A simple request via phone could save you money in the long run. To avoid late payment mistakes in the future, you should set up a credit payment schedule for yourself. If your bank offers automatic bill pay services, you can use those to help manage your payments and ensure they're on time.

Do you have questions about any issues you think might be affecting your credit records? Fill out the form below or contact us today to get a conversation started!