Navigating Credit Pitfalls: Five Common Errors That Can Hit Your Pocket Hard

Maintaining a pristine credit profile may often feel like a Herculean task. The multitude of factors affecting one's credit score can indeed appear overwhelming. Here at CrossCountry Mortgage, we understand the intricacies of credit profiles and scores. Our aim is to simplify this complex topic and guide you through the labyrinth of credit management. The health of your credit profile and score significantly influences several aspects of your life, including interest rates, credit card applications, background checks, job qualifications, rental approvals, and even security clearances for you and your family members.

Error #1: Neglecting your right to free annual credit reports.

As a consumer, the law entitles you to a free copy of your credit report from each credit reporting company - Experian, TransUnion, and Equifax, annually. Although these reports don't contain your credit score, they do include crucial information present in your credit records. It's essential to meticulously review these reports to detect potential identity theft, incorrect information, or derogatory accounts, all of which can impact your overall credit score. Ignoring your complimentary credit report can prove costly, as a poor credit history often translates to higher interest rates and less favorable credit terms.

Solution: Request your free reports three times a year at annualcreditreport.com.

We suggest evenly spacing out your credit reports throughout the year by pulling one from each bureau every four months. This gives you ample time to resolve any negative issues found in the report, subsequently allowing you to validate the updated information in the next report.

Error #2: Failing to frequently check your credit scores for free.

This error is closely linked with the first. While your credit report doesn't include your credit score, there are several resources available for you to obtain it for free. Be it from your credit card company or bank, it's vital to stay informed about your general credit score to avoid any unpleasant surprises when applying for credit.

Solution: Use resources that offer your credit score for free.

If your credit cards or banking institutions don't provide this service, there are numerous other sources available that can help you monitor your credit score. Always remember that your credit score may slightly vary between sources. Thus, the score obtained from your lender's credit report may differ from the one you access independently.

Error #3: Settling for minimum monthly payments.

Paying only the minimum amount due each month results in paying significantly more in interest than what you originally owed on each card's balance. This practice can weigh heavy on your wallet, diverting funds that could be better utilized elsewhere or saved for emergencies.

Solution: Aim to pay the entire balance each month.

By paying the full balance, you not only maintain a positive credit profile but also save money by avoiding interest charges on carried-over balances. If settling the full balance isn't feasible, ensure you pay as much as you can to keep the remaining balance low and prevent the accumulation of high interest charges.

Error #4: Committing to a loan without exploring other options.

While securing a loan is essential for major life events, accepting a loan without comparing its terms and types with other available options can be an expensive mistake. Secured loans require collateral, such as a valuable asset, which, if not repaid, can be seized by the lender. Unsecured loans don't require collateral but carry higher risks and consequently higher interest rates.

Solution: Evaluate your options before committing to a particular loan.

Once you've decided on the type of loan, ensure you gather and compare quotes from at least three different sources. Take into consideration the type of loan, interest rate, Annual Percentage Rate (APR), monthly payment amount, and fees before making your decision.

Error #5: Neglecting to pay your bills on time.

Even though credit bureaus don't classify a payment as late until it is 30 days past due, late payments often incur late fees. This might not affect your credit record immediately but will certainly dent your pocket. If a payment is overdue by 30 or more days, it stays on your credit report for seven years after the first late reporting date.

Solution: Pay your bills promptly and inquire about reversing a one-time late fee.

Avoid incurring late fees or negative marks on your credit record by consistently paying your bills on time. If you happen to incur a late fee, it's worth requesting a waiver, especially if you have a favorable payment history. Although not all companies will agree, the potential savings make it worthwhile. To avoid future late payments, consider setting up a credit payment schedule or automatic bill pay services offered by your bank.

Still have questions about potential issues affecting your credit records? Fill out the form below or contact us at CrossCountry Mortgage today to initiate a discussion!