The twenties is almost like the defining moment of what course your financial journey will take. This is also the time when most people either make the best decisions or the worst. Whether it’s going to that vacation you have been dreaming about or identifying an investment; you need to know your numbers.
A good credit score can help you access the best terms on loan applications. However, people in their twenties need to know the mistakes to avoid so that their credit score is not affected. Below are some of them:
There’s a notion that if people stay away from debt that their credit score will be high. As such, you find most young people shying away from credit cards. They often prefer paying in cash in the assumption that this will improve their credit score.
As much as avoiding debt could be a good thing but for people looking to build their credit score, this is a wrong move. Unfortunately, that’s not true because the credit score is calculated based on the historical ability to pay a loan. So, if there is no data on that, then it’s difficult to determine the score.
Numerous applications for credit cards
As much as having no debt is good for your credit score, the same applies when applying for multiple credit cards. A single application reduces your credit score points. However, if there are numerous applications, this will raise red flags which massively lower your credit score.
Be strategic when applying for credit cards. The points lost due to credit applications are most likely to reflect after six months. It’s advisable that in case you are applying for a loan for something like a car, don’t apply for any other credit until six months lapse.
Before approval for credit, the service providers will need to see your credit history. This is called a hard inquiry which stays on your credit report for up to two years.
Closing credit cards after repayment
A good credit score takes into account your long-term credit history. Most young people often close their credit cards once they repay off the debt. Closing the card will automatically lower your average credit score.
The longer your credit repayment history is, the better your credit score. So, even after repaying, let the records remain. This will help other future lenders see that you are capable of paying a debt which will increase your chances of getting your loan approved.
Misusing credit cards
In your twenties, it’s almost irresistible not to spend when you have a credit card. Budgeting is a necessity as it helps keep you in check. It enables you to avoid overspending on unnecessary stuff. Prioritize you’re your expenses based on your specific needs.
Credit card payments are based on your agreement with the service provider. As such, you know when you are supposed to pay off on a monthly basis. Missing out on a payment profoundly affects your credit score.
Failure to pay also lowers your credit score. It’s recommended you pay before the specific date as this will show that you are keen to pay your debts.
Also, avoid unnecessary expenses and make a serious financial decision that will not hurt your score. Late payments could reduce your rating with as high as 100 points. Set up automated payments to avoid forgetting about paying bills. You can even subscribe to get text or email alerts from the credit card issuers to keep you on your toes.
Opening joint accounts with your significant other
Well, unless it’s marriage, it’s almost a mistake opening a joint account with your significant other. When you are young, it almost feels like a natural thing to do because you are in love. However, when this happens, your partner’s financial mistakes will automatically become yours too.
Sharing a credit card is risky as this only means that a late payment will damage your credit score which could take years to repair. Sometimes, you may put into a financial pitfall that sees you into debt that could render you bankrupt. You end up being on the verge of depression. However, in such cases, you could consider debt relief companies. Here’s a list of companies to work with if you need such services.
To avoid such incidences, avoid combining your finances until you are married and stable to make that decision. It’s hard especially when you feel that your partner is the one. However hard it is, this will prevent you from making debt mistakes that could jeopardize your future loan applications.
Being young is a chance to make financial milestones. At least at this stage, you can explore different investment options that help you secure your future. The tips above should help you be on the lookout for your credit rating.