Financial mistakes come in different shapes and sizes. You can miss a payment on an installment loan or on your credit card balance, you can ruin your monthly budget on a major splurge or make a mistake that causes your credit score to drop. It’s easy to fall for any of these mistakes. However good you are at managing your finances you may fall prey to one of the following mistakes especially if you have recently got a credit card.
Here are 5 mistakes that can impact your finances and a few tips on how to recover from them:
1. You have missed a credit card payment;
One of the worst mistakes that can affect your finances is missing credit card or low payments. Missing or being late on payments reduces your FICO score. Credit scores are used to assess your eligibility for loans and lower rates are met with lower chances of approval as well as worse terms and higher interest rates. Being 30 days late for a payment for example would reduce your FICO score from 680 by 60 – 80 points. It just takes a few mistakes and you will be sent to the subprime category of borrowers.
2. You splurged on your credit card;
We all tend to treat ourselves to something nice from time to time and there’s nothing wrong with that, even if it’s a big expense in case you’ve received a bump in your salary or have received some unexpected funds. The mistake is having these treats morph into shopping habits. You can avoid this by building yourself a splurge budget. Give yourself 10% of your monthly income for random expenses but make sure that the rest goes to living expenses and savings.
3. You’ve lowered your credit score;
This happens a lot and not because someone intentionally wants to reduce their credit score but sometimes mistakes happen. There are some things you can do. For example if you have missed your credit card payment because of a real issue you need to take responsibility first and contact the credit card company to explain your situation. Make sure to explain exactly what happened and that it’s a one time occurrence. Just a little humility can go a long way. You can also improve your credit score by getting a credit card that reports to all of the 3 major credit reporting agencies (Experian, Equifax and TransUnion) . Use your credit card for regular expense and never be late for payments. A rule of thumb is to always keep your expenses at 30% of your card’s limit.
4. You used your student loan for something else;
As a student one of the worse things you can do to your finances is to dip into your student loan for other expenses that are unrelated to your student life. It may seem like a good idea at the time to use that money to take a trip and unwind but you will be making a disservice to yourself in the long run because any money you use will be repaid with interest. If you have already used money from your loan for other expenses that it’s a good idea to start paying a little more each month until your accrued interest rate is under control.
5. You have missed a health insurance payment;
The last mistake we will talk about is missing a health insurance premium payment. In general insurance companies offer a 15-30 day grace period for payment so even if you have missed a payment it should not cause any problems to your credit. It’s best if you contact your insurance provider immediately and pay over the phone to avoid any penalties. If however you have missed your grace period as well you may be in trouble because unlike lenders, insurance providers will cancel your insurance if you are missing payments and you will not be able to apply with them in the future. So what you can do in that situation is to explain what has happened and kindly ask if there are any options to appease them. For example you could suggest to pay the next two months in advance or be willing to accept a slightly higher premium.
The worst solution to any mistake that has made a mess of your finances is to do nothing. Remain calm and take it step by step until you have fixed all your mistakes or risk having the entire situation spiral out of control.