Have you ever made a credit card mistake? Maybe you accidentally missed a credit card payment. Or maybe you maxed out your credit card. Many of us will make some kind of credit error during our lifetimes, whether we lose track of a payment due date or charge a little more money than we can afford to pay off.
Fortunately, many of these common credit mistakes are easy to fix, and even easier to prevent.
If you accidentally forget to make a credit card payment, for example, you can contact your credit card issuer and explain the situation. If you make a new credit card payment quickly enough, the missed payment might not even affect your credit score. And you can prevent future missed credit card payments by setting up credit card autopay.
What about the bigger credit mistakes? Some credit errors are less common, but more likely to cause long-term credit damage. If you make one of these credit mistakes, you run the risk of increasing your debt or lowering your credit score.
“Credit mistakes can be small or large, a one-time oops or a slow drain every month, just eating away at your wealth,” explains Kari Lorz, Certified Financial Education Instructor and founder of Money for the Mamas. “My credit mistake was the latter, as I didn’t even know I was making it. I could have done things differently if I had only known. That’s why learning about personal finance is so important.”
With that in mind, we asked two financial experts to share their biggest credit mistakes. And if you keep reading, I’ll share my biggest credit mistake as well.
Making only one debt payment per month
Kari Lorz’ biggest credit card mistake involved a revolving credit card balance. “I was spending more than I was making, so I couldn’t pay my credit card bill off every month in full,” Lorz told us. “I got paid twice a month, so I’d save up my money all month long and then pay what I could when the bill arrived.”
Lorz could have paid off her debt more quickly — and saved a lot of money in interest charges — if she had made multiple credit card payments every month. “I didn’t even consider that instead of making one payment, I could make two separate smaller payments in line with my pay cycle, and significantly reduce the amount of interest I was paying.”
How can you save money by making multiple credit card payments per month? It has to do with the way credit card interest is calculated.
“Credit card interest accrues daily, so your daily balance determines how much interest you’ll pay,” Lorz explains. “I significantly decreased my interest charges by reducing my balance twice a month with smaller payments.”
If you have credit card debt or a revolving credit card balance, making more than one credit card payment per month is one of the best ways to get your balance paid off as quickly as possible. If you get paid twice a month, for example, try making a credit card payment every time you receive your paycheck.
Want one more reason to consider multiple monthly payments? Many people who make multiple credit card payments every month not only save money on interest charges, but also lower their credit utilization ratio, giving them the opportunity to boost their credit scores as they pay off their debt.
Cosigning a car loan
“My biggest mistake was cosigning on a car loan for a friend,” says Nishaea Richardson, financial coach and owner of She’s the Budget Guru. “I was the person who wanted to help everyone, but at the risk of my own finances.”
The first time Richardson cosigned a car loan, she didn’t fully understand what she was signing up for. “I had no idea that by cosigning I would also be responsible for the vehicle in the event the payments were not made, and the vehicle would also affect my credit.”
Even though Richardson’s friend stopped making the payments on the car — making Richardson financially responsible for the entire loan — this didn’t stop Richardson from cosigning a second car loan to help out another friend. “Yes, I made this mistake not once, but twice!” she says.
After the first friend failed to meet their financial obligations, Richardson tried making the car payments on her own. But when she could no longer keep up with the loan, the vehicle was repossessed. This meant that Richardson’s credit report now included a derogatory mark, which came with its own unexpected consequences.
“I was stuck with a repossession on my credit for seven years,” Richardson says. “That repossession prevented me from financing my own vehicles without a cosigner because I was now looked at as a risk by lenders.”
Want to avoid making this kind of major credit error? “Do not cosign on a loan for anyone unless it is your spouse,” Richardson advises.
Going into debt without a plan
We’ve all made credit mistakes — even me! When I was in my early 30s, I started charging more to my credit cards than I could afford to pay off at the end of the month. Like many people, I kept telling myself that I would pay off the balances someday, but it took me a few years to get serious about paying off my debt in full. During that time, I paid a lot of extra money in interest charges.
There are certain times of life where it’s difficult to avoid credit card debt. The first time I carried a balance on a credit card, I was underemployed and simply trying to get through the month with enough cash at the end to make my rent payment. However, I quickly began justifying all kinds of purchases because — wait for it — I was already in debt. What could a few more dollars hurt, right?
Well, those dollars quickly added up. I ended up with $14,000 in credit card debt.
If I had known how much my credit card debt would cost me, would I have made all of those purchases? Probably not. Some of my credit card charges were essential expenses like groceries, but I also put nonessential purchases, such as movie tickets and restaurant meals, on credit.
While everyone deserves to have a little fun now and then, it’s important to think about what your purchases might cost you long-term — especially if you’re thinking about making an impulse purchase that you know you can’t afford to pay off right away.
In my case, my biggest credit mistake wasn’t going into debt. It was giving myself permission to add to my debt without having any kind of plan to pay it off. Once I had a plan in place, I was able to pay down my debt in full. But I could have saved a lot of money if I’d made that plan as soon as I started carrying a credit card balance.
The bottom line
The more you know about personal finance, the less likely you are to make the kind of credit errors that could have serious long-term consequences. Before you apply for a credit card or a loan, for example, make sure you understand the terms and the interest rates — and before you make a purchase, make sure you have a plan for paying it off.
If you make a credit mistake or two along the way, don’t worry. Many credit errors are easily resolved, especially if you’ve already taken the time to develop the responsible financial habits that can help you pay off your debt and improve your credit score. Your credit history may already be part of your credit report, but your credit future has yet to be written!