Managing your money successfully can be seriously hard – especially when it comes to credit. Credit can be tricky. Credit is something I love to hate because credit only measures your debt. That said, it’s a part of life for most of us, and with that there are things you should be avoiding when it comes to your credit.
1. Spending more money than you would just for perks / cash back
Credit cards offer very nice perks and rewards for using them. With these perks and rewards, you’re charged interest monthly. If you don’t pay off your card monthly, then you end up paying much more money than what you bought with the card because of the compound interest. This is really bad!
You need to remember that when you buy something with your credit card, you are buying it with borrowed money. I join the Dave Ramsey camp when it comes to the belief that credit cards are bad – but that’s because I’m a spender! I’m not imposing this on you but I am telling you that you have to pay off your credit card monthly. If you focus so much on the rewards that you spend more than you otherwise would, you are going to get yourself in trouble.
Using a budget can be a tool to help you stay on track if you use a credit card. (Learn how to budget for beginners here.)
A good example is the people who shop at more expense grocery stores, like Giant Eagle, just for the fuel perks (I’m not talking about going there to buy your gift cards; I’m talking about doing all your grocery shopping there). These people rave about how much money they save in gas because the Giant Eagle fuel perks are so good. Where I’m from, if you shop at Kroger, you will save double or more on your grocery bill than shopping at Giant Eagle just on the price of items alone, but you don’t get something telling you that — it’s just on your bill. But there’s something about “perks” and seeing the amount come off the gas price that people really love – they think they’re “getting a deal”. Really, they could save a lot more money by shopping at a less expensive grocery store than the money they save on gas.
This analogy works the same with credit cards. If you use your card primarily because you like how it feels to get the perks, then you may be tempted to spend more than you otherwise would.
So, stick to a budget and be very thoughtful about how you use a credit card (or just don’t use one at all)!
2. NOT checking your credit reports annually
It is a huge mistake not to check your credit reports and credit score annually. You can check your credit reports for free at annualcreditreport.com once a year. There are three credit bureaus – and you should order your credit report from each bureau every year. You will have to pay to get your credit score, but it’s worth it. Your report will have all of your financial accounts (loans) listed on it, in addition to personal information. This is a great way to make sure everything is correct (i.e. that you’re not a victim of identity theft).
Even with sites like Credit Karma, that allow you to monitor your credit for free, you’re not actually monitoring what is recorded by the three credit bureaus. So, you want to make sure you mark your calendar and get the real thing every year.
3. Paying for regular banking fees
You do not need to pay for banking fees – almost ever. There are lots of options to bank without paying any fees. This goes for your traditional banking accounts, such as your checking and savings accounts, in addition to your credit cards. You do not need to, nor should you pay fees!
Most commonly, this comes up with credit cards. There will be a hidden fee for a particular credit card. And there’s no reason for you to pay fees on credit cards.
4. Obsessing over your credit score
Credit measures how well you pay off your debt – that’s it. Yes, it’s important (and my friend, Alexa, wrote an awesome post on how helpful credit is just last week). But, remember to balance credit with your other financial needs. Don’t get in debt just to build your credit. If you cannot manage having a credit card, then find another way. But if you know that being it debt is bad, then this makes it very difficult to have excellent credit and be debt free. While you may find it necessary to have credit for some things, like buying a home or a car, I urge you not to focus and obsess over increasing your credit score to be “perfect”.
Focus on financial success in total, including getting out of debt and building wealth. Your credit is just one component of your financial life.
A Final Note!
Remember that your credit will help you get into more debt, like getting a mortgage on a home. But otherwise, it’s not the end all be all. So, don’t obsess! Instead, be smart about using your credit, monitoring it, and making choices that are right for you.
- Up Next: An Overview Of Credit