If you’re financially savvy, you may smirk when you come across articles with titles like “How to Build Your Credit From Scratch” or “How to Fix Your Credit Score.” After all, you make good financial decisions and surely have great credit. However, due to misinformation and mistakes, you may be hurting your credit without realizing it. Here are three credit mistakes you and other financially savvy people might be making.
#1. Assuming your credit is fine
When you’re doing everything right financially, it can be easy to disregard advice like “check your credit reports each year.” After all, you’re financially responsible. Why would you need to verify that fact by pulling your reports? Well, credit agencies and reporting lenders are far from infallible, and mistakes occur on credit reports all the time. These mistakes are then used when calculating your credit score.
Check all three of your credit reports each year by going to annualcreditreport.com. One mistake could mean the difference between a fair credit score and an excellent score — and an excellent one will get you much better terms on future credit accounts.
#2. Carrying a small balance on your credit cards from month-to-month
You know what goes into their credit score — payment history, credit utilization, length of credit history, types of credit in use and new credit. But you may misunderstand credit utilization to mean you should carry a balance over from one month to the next. Technically, your score will benefit more with a utilization of 1-30% than 0%, but you can still attain this without paying interest. Here’s how it works:
enders report credit card balances once a month, usually in the middle of a statement period. This means as long as you’re using your card regularly, a balance will be reported for utilization’s sake without costing you any interest. Always pay your entire balance by the due date — your credit will be fine.
#3. Not using credit at all
The financially savvy avoid debt that doesn’t provide a better return than the interest rate of said debt. However, you don’t have to avoid credit entirely in order to keep from paying interest. By using a credit card and paying off the balance in full each month, you can get a short-term interest-free loan, earn cash or travel rewards and enjoy the perks that come along with many credit cards — like extended warranties on purchases and fraud protection.
Another major benefit of regular credit card usage is building a good credit history. A solid credit score can get you approved for the best credit terms, an apartment, a cell phone, a low car insurance rate or a job. The truth is, good credit is generally how lenders and other companies determine whether or not you’re financially savvy.
Use credit. Even if you’re debt averse, a good credit score will open up a world of opportunity for you.
Bottom line: Everyone has something to learn about credit, including the financially savvy. Make sure you’re checking your credit regularly, paying off your credit card balances in full each month, and using credit — responsibly, of course!
Excellent credit score image via Shutterstock