Common credit mistakes

When you’re living on a fixed income, applying for credit can be a necessity to pay for larger items and spread the cost, however, there are a few things you should know to protect your credit rating.

Don’t close old accounts
If it’s taken you forever to pay off a credit card you may be tempted to say goodbye forever and close the account. However, in the eyes of credit rating companies you’ll have less credit available, and the credit history for that account is no longer available, and this can actually reduce your credit score. If you can’t trust yourself, simply cut up the card and leave the account as it is.

Don’t spend big if considering bankruptcy
Bankruptcy is the last option for many people and it’s easy to think that if you’re facing financial ruin, you may as well spend as much as you can now and have your debt wiped. Creditors can challenge your bankruptcy application and it may be rejected by the courts, leaving you liable for even more debt.

Don’t be tempted by store cards
Staff in department stores often push branded credit cards as they get commission for every person they sign up. While it may seem a tempting way to spread the cost of your purchases, it’s more likely to tempt you into spending more. Also, once the introductory offer rate is finished, the interest on store cards is usually higher than that on your average credit card.

Think before agreeing to be guarantor
We all know how difficult it can be for a first-time buyer to get their feet on the property ladder. One way banks make it easier for them is to ask for a loan guarantor. While you may be keen to help, you should be aware that despite their best intentions, first-time buyers can fall behind on repayments, for which you will be liable.

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Keep your credit card number to yourself
There are many scams going around which ask for your credit card details and some are more sophisticated than others. Don’t give anyone your credit card number. If purchasing goods online or over the phone, do your research into the company first; a simple Google search often uncovers anything untoward.

Don’t ignore credit problems
If you’re only making minimum payments, missing payments more often than not, or seeking better deals on credit to be able to afford repayments, then you may be having debt problems. Contact each of your creditors and discuss your situation or make an appointment with a financial counsellor.

Don’t fall for credit repair schemes
If you know your credit rating isn’t great it’s easy to look for quick fixes. Credit repair schemes which promise to clean up your credit history are seldom legitimate and there’s often a charge you can’t really afford. A financial counsellor can advise ways to improve your credit rating which may take some time, but are at least legitimate. 

Don’t pay by card just for the rewards
There’s something satisfying about seeing your reward points accumulate to a level where you can get something ‘free’, however, it’s not worth buying goods just to achieve your target. When you calculate the amount you have to spend to get your ‘free’ goods, you’ll more than likely find it would have been cheaper for you just to buy it in the first place.

Written by Debbie McTaggart