June 7, 2017
3 of the scariest financial mistakes (and how to fix them)
Not all scary stories start in an abandoned warehouse on a dark and stormy night. Sometimes, they start because your best intentions unravel into financial missteps. Other times, you don’t realize you’re writing your own horror story until it’s almost too late.
Below, we compiled three frightening financial mistakes. We also included some tips to help you better understand credit and personal finances, as well as ideas to help you improve your situation.
IT CAME FROM INSIDE THE MAILBOX
I’d just turned 18 when a credit card offer showed up in my campus mailbox. Having a credit card felt like the “right” thing to do, so I signed up. Soon, I was using that card anytime I needed gas … or wanted new clothes … or went out to eat. It felt like free money! But I wasn’t paying attention to my bill, so interest fees started piling up like crazy. By the end of my first semester, I had thousands of dollars of credit card debt. The debt haunted me all through college. I just got my first job and I’m still trying to pay everything off.
Using a credit card definitely comes with a lot of serious considerations and potentially long-lasting effects. For example, using credit responsibly can help you build a solid credit history, but missing payments or not paying the balance in full each time can lead to issues or extra fees. Keep in mind that each new credit account can impact your credit score, so only open new cards as needed.
If you made credit mistakes in the past, make paying off debt a priority. Your credit report can help you identify your accounts, amount owed and interest rates. From there, look at your budget and build a plan to manage and reduce debt.
THE LONG RIDE HOME
I never saw it coming. One minute I was at the dealership, just browsing the trucks … and then a sporty little coupe caught my eye. I was signing the contract before I knew it. But as I drove my new car home, I noticed that I was too tall to fit comfortably in the driver’s seat. Then, I realized that there was no place for my bike rack. And when my wife saw the car, she pointed out (among other things) that the coupe definitely wasn’t the right choice for our growing family. Now I’m stuck making payments on a car that doesn’t fit our lifestyle — literally — all because I was too impulsive to make a plan.
Taking a test drive is a crucial component of the dealership experience. If you’re looking for a new car, truck or SUV, talk to your dealer about what you need (size, fuel efficiency, price) and what you want (heated seats, LED lights, leather interior) to help find the perfect vehicle for you. Spend at least 15-20 minutes test driving and pay special attention to the vehicle’s acceleration, brakes, visibility, handling and turning, and have everyone who plans to drive the car do the same. If you aren’t sure what your vehicle needs will be 3-5 years down the road, talk to your dealer to learn if leasing is a good option for you.
THE CASE FOR CREDIT
My motto used to be, “If you can’t pay cash, don’t buy it.” But all of those years of strictly paying cash meant that I had no credit history. I was “credit invisible.” Financial lenders didn’t know if they could trust me because I didn’t have a credit score. Suddenly, all those big purchases I’d been dreaming of — a new car, a house — became a lot harder to achieve. I could have spent this time using credit responsibly and building a healthy history — but instead I had to put my future on hold for a while.
Because 90% of top lenders use Fair Isaac Corporation (FICO) scores when making lending decisions, little or no credit history can make it difficult to secure financing or get a low interest rate. If this is the case for you, look for lenders who make decisions on a case-by-case basis and work with them to find a financing option that works for you. You also may be able to get a co-applicant on your financial contract.
As you continue to use credit responsibly and build your credit history, be sure to regularly monitor your credit report for accuracy and immediately report any errors. You can request a free copy at annualcreditreport.com.
Looking to rewrite the ending to some of your own stories? Download our credit education brochure for more insight and advice.