Financial Mistakes To Avoid If You Want To Keep Your Credit Clean

Keeping your credit clean is easier said than done. Our modern world is awash with spending pitfalls and if you’re like most people you’ve had little education on how to avoid them.

Learning as you go may sound like a good idea, but the reality is this can lead to some serious financial mistakes that can ruin your credit for years to come. That means it pays to educate yourself on any potential credit pitfalls before you accidentally learn by doing. 

Here’s your chance to do just that, these are 5 financial mistakes to avoid if you want to keep your credit clean:

Leasing That New Car

Leasing a new car may sound like a great idea. After all, you don’t have to pay full price just monthly payments, right? What could go wrong?

Well, it turns out, a lot.

Leasing a car an unaffordable car is one of the most common ways people hurt their credit scores. Remember, just because you are approved for a lease, doesn’t mean it’s a smart financial decision. 

There is a good rule of thumb for determining whether or not you are getting a good deal on a lease, however. It’s called the one percent rule. What you do is simply divide the monthly payment by the MSRP sticker price of the vehicle, if it’s close to or below 1% then it’s a good deal, if it isn’t then its a bad deal. Also, watch out for leasing fees they can end up costing thousands and are often hidden by dealers.

Still, even if you got a great deal on your lease and avoided all those crazy fees, you can still wreck your credit score by not making payments on time or defaulting on your lease. That’s why it’s so important to only lease what you can afford, or even better just buy a used beater and avoid the potential pitfall altogether. 

Buying A House

Buying a house can be a great investment, but it can also lead to financial ruin. Just ask anyone who bought in 2007 before the great recession. 

Low credit scores can lead to the need for larger downpayments and higher interest rates which can cost tens of thousands or more over the entire loan period. 

Home loans aren’t just affected by your credit score though, they can also drive it down considerably if you default or miss payments. 

If you are late on home loan payments lenders will usually give a 15-day grace period, then you will be charged a late fee. After 30 days, however, your lender will report the missed payment to the three credit bureaus(Equifax, Experian, and TransUnion), hurting your credit score. 

This means it’s vital to only buy a house if you can afford it. A good rule of thumb is to not spend more than 25% of your monthly income on mortgage payments. 

Getting A Payday Loan

Payday loans are one of the fastest ways you can ruin your credit. They really should be avoided at all costs. 

If you haven’t heard of a payday loan, they are small, short term loans with high-interest rates that are mostly targeted towards low-income borrowers who need extra cash to get them through the month. 

While most payday lenders don’t report to the national credit bureaus when a borrower first takes out a loan, your credit can still be affected by borrowing at such high-interest rates. 

This is because Payday loan companies sign a post-dated check corresponding with your next payday as collateral for your loan. Then, if you don’t have the funds in your account by your next pay date, when the lender cashes the check, it bounces hurting your credit score.

Also, your credit score can be affected by debt collection agencies hired by the payday loan company to help recoup their funds after you’ve missed a payment. And because the interest rates on these loans are so high many borrowers end up stuck in a never-ending cycle of missed payments, credit collection calls and tanking credit scores. 

Don’t let that be you, avoid getting a payday loan. 

Student Loan Disasters

Student loans can be great credit builders if you are consistent in your repayment plan. However, they can also really hurt your score if you default on your loans or make payments late. 

The situation can be even worse for international students. International student loans often carry higher interest rates and many times international students have more expenses so they take out larger loan amounts. This can lead to disaster if loans aren’t paid back promptly.

Your credit score is affected by student loans when private lenders report missed or late payments to the three major credit bureaus, which is usually done after 30 days. Federal lenders are more lenient, they usually report missed or late payments after 90 days, but still, if you want to avoid tanking your credit score then you’ll need to be on-time with your payments. 

Going Without Insurance

Did you know that 66.5% of all bankruptcies in the U.S were tied to medical issues? That’s an estimated 530,000 families who turn to bankruptcy each year because of medical bills, according to a recent article by CNBC.

It’s no secret that medical bills can ruin you financially, and that’s with insurance. Without it, if something bad happens you can be looking at a lifetime of debt ahead of you. 

That’s why it’s vital to make sure you have health insurance. My father always said if you can only pay one bill, make it health insurance. That’s before your car payment, before utilities, even before your rent, because in the U.S the one thing that can truly ruin your finances for life are medical bills. 

In the U.S, simple financial mistakes can cause your credit to be in the bin for decades. Still, there is a lot you can do to prevent these mistakes or even to try and rectify them after the fact so you can get back on track financially. 

If all else fails, and your credit is still in the tank, it might be a good idea to hire a credit repair company to guide you through the process of credit rejuvenation. These companies make it easy to fix your credit and are with you through the whole process. So don’t wait until it’s too late to repair your credit, act today!

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