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6 Mistakes You Do In Your 20s That Affect Your Credit Score

6 Mistakes You Do In Your 20s That Affect Your Credit Score

If you are wondering why your credit score is so low, you might want to take a look at your financial habits in your 20s. This is the time when many people make the biggest mistakes, which linger on for a long time. As you will see, most of the mistakes people make when they are young are due to lack of knowledge regarding the credit score. It’s important to inform yourself on what increases your score and what harms it, as soon as possible, so you can start building your score.

A couple of mistakes in your 20s, and you won’t be able to get a loan for a house later in life, so here are all the things that harm your score.

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1. Closing old cards

When you pay off your loan you will be tempted to close the credit line. Well, this is a huge mistake! Your credit score is being calculated based on the age of the credit lines and the debt-credit ratio. This means the older a credit line is, the better it is for your overall credit score.

If you want to increase your credit score, make sure you keep your credit cards open for as long as possible. This way, when you will apply for a loan, you will look more reliable, and the lenders will see that you are financially-wise.

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2. Helping friends

Probably the biggest mistake you can make is co-signing a loan. Many 20-somethings make this mistake, thinking they are helping their friends, but what are you doing? When you co-sign you accept to pay the loan if your friend won’t be able to pay it. When you think of it from this point, you’ll see it’s a bad idea from a financial point of view, friendship point of view and credit score point of view.

3. Maxing out the credits

Having multiple credit lines is good, but they have to be kept around 30% of your total credit limit. If you are maximizing your credit lines, your credit score will drop significantly. If you can’t stay below 30% of your maximum limit, you should call your oldest lender and ask for a limit increase.

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4. Not knowing what happens with your credit score

There are more and more hackers out there, and literally, anyone can become their victim. However, if you do check your credit score on a regular basis, you can spot unwanted activity on your accounts. Learn how to get a credit report on yourself and check it letter by letter – if you spot something suspicious, call the authorities. The number of people who don’t know how their credit score looks is overwhelming; don’t be one of them.

5. You apply for too many credit lines

Each time you apply for a new credit line you are lowering your credit score. This is because each time you apply for a new product, the lender is going to request a hard inquiry on your finances. Too many hard inquiries in less than one year are going to lower your score. To prevent this from happening carefully consider each new credit line and make sure you’re not applying for too many, too frequent.

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6. Delaying your payments

As you would expect, late payments are going to lower your credit score. Even if you are not penalized for this, your credit score will drop, so it’s a good idea to have reminders for your payments or automatize them.

As long as you know what are the things that harm your credit score, you are able to avoid them and work on increasing your score. Keeping an eye on your credit score also helps you stay safe from identity theft and fraud, which are now growing in frequency.

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Last Updated on March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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