For those living in emerging markets where credit products are still relatively new, navigating the credit landscape can be an overwhelming ordeal.
However, understanding how to be responsible with credit is essential for establishing and maintaining a positive financial profile and a long credit history.
In this article, we’ll dive into three most common credit mistakes, along with practical advice on how to avoid them.
Mistake 1: Missing Payments
Failing to repay a loan or charge on time can have a devastating effect on your credit score and economy. Even one late payment can have a negative effect on your credit score and make it harder to obtain approval for loans in the future. Your overall debt can increase due to the accumulation of late fees and higher interest rates.
One of the easiest ways to make sure you don’t miss a payment is to set up automatic payments on your bank app or credit card company. This way, you won’t have to worry about missing a payment because your monthly payments are automatically taken care of.
If you own one, also remember to include credit card payments in your budget, just like any other essential item.
Mistake 2: Applying for multiple forms of credit at the same time
Trying to get a bunch of credit all at once is a big mistake. Every time you apply for a new credit – be it a loan, overdraft or even a credit card, a hard inquiry is made into your credit record and lenders might see you as a risk shortly after making multiple hard queries.
Do not make it a habit to apply for multiple credit at once. In fact, it is best to apply for additional credit when you are financially stable and have a high credit score. This shows lenders that you are trustworthy.
Mistake 3: Maxing Out Credit Cards
It’s no news that credit cards can be valuable financial tools when used responsibly. They offer convenience, security, and the ability to build credit history, which is essential for obtaining loans and other financial products in the future. Credit cards also often come with rewards programs, travel benefits, and purchase protections that can provide added value.
However, excessive use of credit cards might lower your credit score since it increases your credit utilisation ratio. To avoid this, make it a goal to pay off your credit card balance in full every month. You can avoid interest charges and keep your utilisation ratio low by doing this.
If you are unable to pay off the full amount in one month, consider making multiple payments to lower your balance.
Maintaining a low credit utilisation ratio is essential for a decent credit score. This exemplifies responsible use of credit and that you are not relying too heavily on borrowed funds.
The truth is, building a stellar credit profile is a long game and It can take years to get your credit score to where you want it to be. Checking your credit report and score regularly, paying your bills on time, keeping your credit card balances low and avoiding debt that could put a strain on you will definitely go a long way to build and maintain a strong credit profile.
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