Bad Decisions That Can Lead to Credit Problems



You can ruin your credit score in a matter of weeks, days even. What’s worse is that you can’t rebuild your credit score in the same amount of time, not even close to that amount of time.


The mistakes that damage your credit score typically remain on your credit report for seven years. While you may be able to rehabilitate a damaged credit score after a few years, it may take the full seven to completely recover and move forward. If you know how bad credit happens, you may be able to avoid the mistakes that will ruin your credit score.


 

 Two things lie at the root of almost all credit problems: taking on too much credit: borrowing more than you can afford and failing to repay your debt according to the terms. Even knowing that, credit problems can sneak up on you because you may not realize you’re taking on too much or that you’ll fall far behind on your credit payments. Here are some ways that credit problems happen and things you can do that lead to bad credit.


1. Opening a credit card before you’re ready

There are certain things you need to do to prepare for a credit card. Understanding money, being able to budget, and having a steady income are a few prerequisites for opening a credit card. You also need to be responsible enough to maintain a balance you can afford and to make your payments each month. The credit card issuer will only require you to have regular income and sometimes a good credit history. Learning the other key principles of credit card readiness is up to you.


2. Opening more credit cards than you can handle

For beginners, one credit card is enough. Making more money doesn’t mean you can necessarily handle more credit cards. Managing multiple credit cards requires discipline and organization. You’ll have to keep track of your balances, available credit, payment amounts, and multiple due dates all while paying your other bills and making sure you’re not creating more debt than you can handle. It’s indeed a juggling act and if you can’t handle it, you may end up in debt and unable to afford your credit card payments.


3. Taking on more financial obligations than you can afford

Your monthly income can only accommodate a certain amount of expenses. When those expenses exceed your income, you’ll run into problems. You may unknowingly take on more than you can afford because you’re not reasonably or completely considering your income and current expenses before you agreeing to a new recurring expense. If your monthly expenses are too high for your income, credit problems are inevitable.


4. Avoiding financial issues

Running from problems is never a good solution and will almost always make things worse. If you’re having money problems, face them. Take a good look at what money you have and what expenses you have to pay. Figure out which expenses you can get rid of to make it easier to afford your necessary expenses. If you ignore financial troubles when all the signs are right in your face, it will only get worse.


5. Neglecting non-credit payments

Credit cards and loans are reported to the credit bureaus each month. Other payments, like cell phone and utility payments, aren’t reported regularly. But that doesn’t mean you can pay these late or completely neglect them. If you’re skipping payments, it’s a sign of a bigger issue that could eventually impact your credit card payments if you’re not careful. Not only that, defaulting on any type of payment obligation can impact your credit since unpaid balances are often sent to a collection agency not too long after you fall behind.


6. Withholding payment in retaliation to your creditor

Some people think that withholding payment from their credit card issuer is the solution to credit card disputes. Unless you follow a specific process, withholding payment will hurt you and not your card issuer. The Fair Credit Billing Act gives cardholders the right to dispute credit card billing errors within 60 days. You’re allowed to withhold payment of the disputed charges while the credit card issuer investigates. Otherwise, you must pay up if you want to save your credit. Skipping payments under and other circumstance will lead to late payment entries on your credit report.


7. Failing to adjust/evaluate spending after major life changes

Getting married or divorced, having a baby, relocating to a new city, losing your job, taking a pay cut, and buying a house are all situations that can majorly affect your life and your expenses. When you experience major life changes, it’s important to reevaluate your spending to ensure your income will still cover your expenses. You may need to cut some expenses so all your spending will comfortably fit your income.


8. Taking on credit or loan products you don’t understand

Adhering to the terms and conditions of your credit cards and loans is key to keeping your account in good standing. A 2013 study from J.D. Power and Associates reveals that only 47% of credit card customers completely understand their credit card terms. If you don’t understand your credit card or loan, you’re more likely to make critical mistake.


Credit problems develop over a period of time, which can make them hard to miss. Continually monitoring your payment and spending habits is the best way to recognize earlier that credit trouble is looming.