Your Parents’ Credit Mistakes: How Not to Repeat Them
I grew up in a small South Texas border town where EVERY one was poor. As to not offend anyone, we never talked about money, income, bills, savings or dared ask financial questions aloud because no matter how much any one made, it was just never enough. Since we never spoke of financial issues, our generation or generation before us never learned how to earn, save or spend wisely. When I saw this blog pop up, I knew I had to share because I know I’m not the only one… no seriously, I see your credit scores. I KNOW I’m not the only one. Here’s how to stop the cycle.
Even the best parents have their faults. In fact, when it comes to financial and credit management habits, many parents mess up. But just because your parents are clueless when it comes to credit doesn’t mean you are destined to follow in their footsteps. You can resolve to learn from their credit mistakes.
Mistake #1: Ignoring the Importance of Your Credit Reports
One of the biggest credit mistakes you may have noticed your parents making is adopting a lackadaisical attitude about credit. Many people go through life completely unaware of the condition of their credit reports and scores, failing to recognize the significant impact the information can have on their lives.
If you were brought up in a home where credit wasn’t a dinner table conversation, you want to put forth your best effort to break this cycle. For starters, you can claim a free copy of your three credit reports (Equifax, TransUnion and Experian) once every 12 months from AnnualCreditReport.com. Checking your credit more than once a year is best, but an annual checkup is a great place to start. When you check your three credit reports you should also review them for errors or inaccurate information. If mistakes do appear on your credit reports, you have the right to dispute them thanks to the Fair Credit Reporting Act. And in all fairness to your parents, websites and the right to claim free copies of your credit reports may not have existed until well after you were born.
The habit of charging more on a credit card account than you can afford to pay off every month can hurt both your credit scores and your wallet.
The condition of your credit reports will matter throughout your life. Good credit can often mean the difference between an approval and a denial when you apply for a mortgage, loan, credit card or housing. Employers routinely evaluate credit reports as part of the application process. In fact, your credit could even be reviewed when you apply for insurance coverage or when you open new utility accounts. Become more engaged with your credit reports, to the point where you’re checking them several times each year.
Mistake #2: Racking Up Credit Card Debt
Another huge mistake your parents may have made, or may even continue to make, is an over-reliance on credit cards. Credit cards themselves are not a problem and they can even be an effective credit-building tool when used properly. However, the habit of charging more on a credit card account than you can afford to pay off every month can hurt both your credit scores and your wallet.
Your parents may not have understood that revolving an outstanding credit card balance from one month to the next can damage credit scores and be the most costly debt they’ll ever service. If you follow in their footsteps, then your credit scores could be impacted negatively, too, even if you make every single monthly payment on time. Instead of using credit cards as if they were short-term loans — or worse, long-term loans — determine to pay them off in full each month.
Mistake #3: Late Payments
Few people deliberately set out to pay bills late, and if your parents made this mistake, they probably did so without premeditation or intention. However, when people overextend themselves financially or when bad luck strikes, it is not at all uncommon for a bill juggling act to ensue. Perhaps you observed your parents juggling bills and making late payments on their financial obligations. If so, this is another bad habit that you need to work hard to avoid at all costs. Banks are unforgiving when it comes to missed payments, which is one reason why they can severely damage your credit reports and scores.
The advice sounds so easy: Pay your bills on time, don’t get into excessive credit card debt and check your credit reports regularly. If it was really that easy, then why is the average credit score only 700, which is a full 150 points below the perfect score? If you’ve grown up in an environment where credit management wasn’t a priority, you face a tougher challenge, but one that with grit and determination you can crush.
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