How to Wreck Your Credit…And Then Fix It Again
by Sara Stringer
We all have the best of intentions. We sign up for that first credit card and we think “okay, this is it. I am going to be completely and totally responsible with this thing. I know how credit works and I am prepared for this.” And then, something happens. We make a mistake or two. We get in over our heads and we wish we could take back signing up for the card at all. While obviously the goal is not to wreck our credit from the outset (thereby putting ourselves behind the boulder), there are some things that will set you up to do exactly that.
Wrecking Your Credit 101: Don’t Do This Stuff
Missing Payments. Missing one payment over a lifetime of credit isn’t a big deal. When you’ve only had the card for six months and you’ve missed at least three of those payments? It is a huge deal. We understand: it’s easy to forget that the payment is due. Still, make sure that you are paying at least the minimum due by the due date on your card’s statement every month.
Paying Only the Minimum Due. Okay, yes, we just told you to pay at least the minimum amount due. That, however, is the worst case scenario. You should always try to pay more than the minimum amount due, otherwise you’ll wind up paying back way more than you actually spent. The best way to pay your card is to figure out how much interest you were charged last month then tack that amount on to your minimum due and then add another five or ten bucks. This way you offset your interest charges and pay down your debt.
Charging Too Much. When you are in your early 20s you likely aren’t making a lot of money so if you max out your credit cards early on, not only are you setting yourself up for financial hardship, you’re wrecking your debt to income ratio. Only charge what you know you can pay off within two months. This is one of the few times we will tell you to think pessimistically: never ever charge something and think “I’ll find a way to make this work.” Only charge what you already know how to make work.
Not Reading the Fine Print. Not many creditors are going to just give you a line of credit, string-free. According to the Creditrepair.com blog post “Understanding Credit Card and Bank Fees,” failing to understand things like your annual fees, bank fees, late fees, etc. is one of the major reasons so many young people get into trouble with their bank and credit accounts.
Putting Your Credit Back Together Again
Start Making Payments Right Now. You can’t “take back” your missed payments. You can, however, start building a solid history of paying your bills on time. This is where that “the minimum due is better than nothing” rule comes in to play.
Set Up Automatic Payments or Alerts. If you have trouble remembering when your bills are due, set up automatic payments with your creditor. You can set up to always pay at least the minimum amount due and then anything else you remember to pay is “icing.” Make sure you set up a reminder alert that the payment will be withdrawn from your bank account so that you can make sure you have enough cash in there to cover the payment. The last thing you need is an overdraft fee as well as a missed payment fee.
If things get really messed up and out of control, you should talk to a professional. You can make an appointment with your bank or with a financial advisor. This professional will look at all of your numbers and help you set up a plan for getting back on track. Even so, it’s better to take steps now to make sure that you don’t need these services in the future. You can do it!
About the Author
Sara Stringer is freelance writer who enjoys writing about natural health alternatives. In her spare time, she enjoys maintaining an active lifestyle through swimming and practicing yoga.