Common Beginners Credit Mistakes

Ever hear of anyone receiving an instruction book with their first credit card?  It’s not likely.  Lenders do have programs that aid in educating credit users, but new credit users are not typically informed of these programs until after it’s too late.  Why?  Lenders increase their profits from not properly educating new credit users.  However, you can learn from others mistakes by understanding what the common mistakes are and how to avoid them yourself and build good credit. 

The number one mistake that beginning credit users make is to charge beyond their own reasonable budget.  Some even fail to have a budget altogether.  Then one day the credit fairy visits and leaves a magical little piece of plastic in the mail.  All too soon, they have reached the maximum credit limit of their very first card by making purchases outside a reasonable budget and only paying minimum monthly payments.  That is just the beginning of the end.  The only way to avoid this path is to set a budget, stick to it, and pay the balance in full each month. Do not let the credit card company set your budget by providing a large maximum line of credit that you cannot possibly pay in full each month.  

Paying only the minimum amount due each month is a dangerous and vicious cycle that accumulates debt quicker than beginners realize.  If only the minimum payment is made on a card, then you are charged interest on the remaining balance.  The minimum payment will usually pay for the interest being charged to the account and then very little of the payment is applied to the remaining balance.  This means that it would take someone several years to pay off a $400 balance by making just the minimum scheduled payment. 

The next most common mistake of a beginning credit user is to obtain an unreasonable number of credit cards in a short amount of time.  This mistake has been grossly enabled by the numerous pre-approved offers sent via mail and almost every retail clerk pushing credit card applications with this perk or that perk.  Some beginners think that the greater amount of cards means greater purchasing power.  It might even seem like a good idea to obtain numerous cards to help build a solid credit history.  However, too many cards allow you to spend far beyond a reasonable budget.  Having too many monthly payments will make it difficult to pay off the balances.  It hurts your credit record when you carry high balances and have high limits of credit extending to you that are close or beyond your income.  For most beginning credit users, a maximum of two cards is more than sufficient.