You're probably working very hard to keep your finances as healthy as they can possibly be, especially if you've run into a bit of a rocky road in the past. However, there might be a problem or two that you have to deal with, without even knowing about them, and that in turn could lead you to need a credit fix somewhere down the line.
Even when you are trying to handle all your accounts as responsibly as you can, it's still possible that you might make a mistake or two here and there. After all, juggling every aspect of your finances exactly right isn't easy, and there are a lot of moving parts to consider. Moreover, there are also a lot of issues related to managing credit that some people might have a few misconceptions about. As a result, you might be putting both your finances and your credit at risk by continuing to make them.
What are the most common mistakes you can make?
One of the biggest misconceptions many people have about their credit card debt is the old standard that lenders want you to have a lot of it. The thinking behind that misunderstanding is that this allows lenders to actually make more money from consumers, so big balances would be preferable to them, but the opposite is actually true.
The thing lenders care about most is, in reality, your ability to pay your bills on time and in full, every single month. Having big debts, therefore, is seen as a negative because it might be a sign that you're overextending yourself, and thus would be more likely to fall behind on your payments. For this reason, if you're carrying a large debt, you're not only hurting your finances — because of how much you probably have to pay into those accounts every month, and thus don't have enough to contribute to your savings, for example — but also your credit score. In fact, the most you can owe across all your accounts before your credit score starts to drop is just 30 percent of your total combined limits. This factor alone makes up 30 percent of your score, so even going over that maximum amount by a little bit can do some pretty serious damage.
For that reason, if you've carried a large debt for some time and haven't checked your credit standing in a while, you might be in worse shape than you thought. This is especially true if you've been making another very typical mistake: Sending in only the minimum monthly payments every month. Doing this may help you to avoid putting too much of your take-home pay toward just your debt, but it also makes your debt grow more quickly. Every penny you contribute above that minimum listed by your lender must, by law, go toward paying down your principal, rather than any interest you've accrued in the past. However, without doing that, you're only going to chip away at your interest, not the far larger portion of the balance you've likely racked up.
One you might not have thought of
Another very common mistake that you might make as you try to deal with your debt relates back to that 30 percent limit on your cards. When you finally pay off one of your cards in full, you might be tempted to close out that card altogether so you aren't tempted to start spending on it again. However, that will bring down your total limits and potentially push your "credit utilization ratio" back above that mark once again, essentially undoing a lot of your hard work to get to that point. For this reason, you'll probably want to keep all your cards open at least until the process of paying off your existing debt is finally completed, and you're convinced that such an action won't have a negative impact on your score in this way.
Finally, perhaps one of the most important things you can do when it comes to keeping close tabs on your credit standing and overall finances is to regularly order copies of your credit reports. Doing so will allow you to figure out exactly where you stand on every account that's currently open in your name, including your payment history for each. However, it might also allow you to determine whether there may be any unfair markings listed on these documents. If so, they could be doing serious damage to your standings. As such, you might want to contact a credit repair law firm about the potential issue, as this may allow you to get a better handle on the situation, and clear it up far more expediently than you might have been able to accomplish on your own.