5 Common Credit Blunders and Tips to Avoid These Mistakes

There is no doubt that a good credit score plays an essential role in qualifying for better interest rates for auto loans, mortgages and credit cards. Unfortunately, many of you, knowing this fact, fail to keep your credit report in good condition. High interest rates are charged as a consequence of poor credit scores.

There could be several reasons for a bad credit rating. A large number of people who typically struggle with maintaining a desired credit profile are aged between 20 and 30. As you graduate, you start planning for major milestones such as finding a job, opening your own business, building your networks and so forth.

You often do not realise that financial decisions come along with these events. Due to juggling with your priorities, you eventually fall into a pitfall of debt issues, which are completely preventable.

Here are the five common credit mistakes and ways to avoid them:

Missing payments

Payment history accounts for 35% of your credit score. Now you can see it will have a huge impact on your credit points if you miss payments. Missed payments are reported to credit reference agencies if they are due in the past 30 days. They will also impose late payment fees that quickly add up the size of the debt.


·        Before you take out personal instalment loans, you should carefully scrutinise that you can repay on time even if you face a big blow to your finances.

·        Create a budget and try to cover all your expenses from the money you are left with after deducting the payment.

·        If you find that you cannot make the payment, you should discuss your concern with your lender before the instalment is due.

Frequent credit applications

One of the biggest mistakes that affects your credit report is frequent applications for credits. Applying for loans and credit cards in a short period of time will leave an impression on the lender that you are in desperate need of money. Chances are you badly manage your finances and that you will struggle to pay it off if approved. As a result of that, you will be refused or charged very high-interest rates.

Another drawback of this scenario is that hard inquiries will be made each time you put in the application. These inquiries can quickly plummet your credit points, so be cautious.


·        You should wait until you receive a response from your direct lender.

·        Do not immediately apply to another lender if turned down.

·        Find out the cause for rejection if possible. You can drop an email to your lender to find out about it.

·        If you manage to get a loan, make sure you do not apply for another loan until your credit score bounces back by a few payments.

High credit utilisation

A credit card seems to be the most convenient method to purchase, but you quickly max out. Lenders recommend that you should not utilise more than 30% of the credit limit. A higher credit utilisation will have a bad impact on your credit score as it implies that you rely on credit for most of the purchases. You can never qualify for the best interest rates if the credit utilisation ratio is quite high.

A high credit utilisation ratio is oftentimes the result of closing your old credit cards as well. As is the case with keeping credit card balances, closing old accounts can also take a toll on your credit points.

When you close your old credit cards, regardless of the reasons – you do not want to pay monthly fees or fear of financial frauds – the total available credit limit and the length of credit history will reduce.

For instance, if you have three credit cards, each with a limit worth £1,000. You have a balance on these credit cards as follows:

·        Card 1 – £500

·        Card 2 – £500

·        Card 3 – £1,000

At this moment, your credit utilisation ratio is 33.3%. If you choose to close the third credit card, this ratio will go up to 50%.


·        Use your credit card only to make large purchases that allow you to repay the balance in instalments.

·        If you use your credit card, keep tracking your spending. Overspending can blow up your budget.

·        You should avoid using your old credit card accounts.

Waiting to establish credit

Many youngsters wait too much time to build their credit. In the event of no credit history, you will struggle to rent out a flat and get the best credit card deals and lower interest rates.

It can take a long time to build sufficient credit history to enjoy the benefits of affordable deals, but there are some small ways to serve your goals.


·        You should apply for an introductory card and use it for groceries or gas. Try to pay off the balance in full.

·        Once you take it in your stride, you should start using your credit card for other purchases, too. Avoid late payment fees.

·        Take out a credit builder loan from private lenders in the UK. You will pay down the debt in instalments which will help build your credit points faster.

Not understanding the key terms

It is not surprising that people use most of the terms interchangeably though they should not. For instance, APRs and interest rates are both different. APRs include interest rates and other fees. At the time of reading a contract, you overlook terms and conditions, but having no clarity about them can cause deadly mistakes.


·        You should know the difference between current balance and statement balance, how a grace period works, what is called a billing cycle, the difference between processing fees and monthly fees, etc.

·        You should know how minimum monthly payments work and what their impact will be on your credit score.

The final word

Building a credit history is difficult, and maintaining a good credit history is even more difficult. Many people struggle to maintain their credit reports because of various mistakes that they can easily avoid.

You should try to avoid taking out a loan when you cannot repay the debt. Make sure you do not apply to various lenders in a short period of time. Do not close your old credit cards. Start building your credit history as soon as possible. Use credit cards and take out credit builder loans, but use them sensibly.

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