Credit conundrums: Avoid these pitfalls while building financial stability

Credit. We don’t often think about it, but we can’t live without it. If you have good credit then you have a strong backing when you go to buy that flashy new car or a home for your family. Unfortunately, getting good credit is easier said than done and many people fall into common credit traps. This is how to avoid them.

One of the most common reasons that people are not approved is that they are just too new to credit. This is especially true for young people and those just starting out at their first job. It is kind of a catch-22. You can’t get a credit card because you don’t have credit but you can’t get the credit because you don’t have a credit card!

You can help rectify this issue by becoming an authorized user on someone else’s card, perhaps a parent who will set a responsible limit, so you slowly start to build your own credit history. Just make sure both parties understand and agree to the limit and legal responsibilities (we've heard some horror stories).

If you are too desperate for credit, then you might fall victim to the next most common denial reason: too many credit inquiries.

When you are trying to build your credit, you may think that the more places you apply to, the better your chances, but this could be your downfall. When you apply to too many credit lines it gets the credit companies nervous, as if you are desperate to get credit because you lack other financial security. A lot is 10-15 inquires in a six-month period.

Improve your chances by limiting your credit queries to one per month at most.

If you already have credit, but you are starting to find issues increasing it, then you may want to look back at your credit history, primarily your missed payments.

As you can imagine, if your history shows that you aren’t too dependable when it comes to paying the money back, then the companies are going to stop trusting you. Missed payments could set you back while bankruptcies and tax liens can really take you out of the running.

There’s not much you can do about these negative transgressions, all you can do is look to the future. Be responsible, only buy what you can afford and wait the seven years for the marks to fall off.

Finally, the credit card companies want to ensure that they are protecting their product by lending credit to the most worthy applicants. If your application has errors, then some of this credibility is lost.

There are auditors who fact-check your application before sending it through so make sure that everything is spelled correctly and that the information is factual. This includes the income section. If you try to improve your image by stating that you make more than you actually do, then you are asking for trouble.

Having credit means much more than just the ability to buy stuff. It also gives you the opportunity to buy the big things that make life worth living. Do yourself a favor. Avoid these pitfalls and see your way to good credit.

Photo Credit: Creative Commons

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