I made these mistakes with my credits cards so you don't have to.
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Did you know that credit card mistakes you make now can affect you for many years?
Unfortunately, this is a lesson I learned the hard way. When I was in college, I made a number of silly mistakes when it came to getting and using credit, and it took my score years to recover.
While I have a really good credit score today, unfortunately it's not as high as it would've been had I not made these errors in my college years. The good news is, you don't have to make the same mistakes -- just learn from my missteps and avoid these three big ones.
1. Opening too many credit cards
Would you believe that when I went to college, credit card companies were invited on campus to set up booths and entice unsuspecting 18 year olds to open credit cards? Not only that, but these creditors were allowed to offer swag, including free T-shirts and beer koozies, if you just filled out a little form and signed up for a card.
Unsurprisingly, I ended up with quite a few credit cards along with those shirts. Not only that, but when I hit my favorite stores and was offered a discount at the register for opening up cards, I tended to say yes.
By my junior year of college I had about 13 different store and major credit cards. I also had a few thousand dollars in credit card debt and only a summer job to try to pay off what I owed. Fortunately, I realized things were starting to get out of control and made paying off my debt a priority, which I was able to do by the end of my senior year.
Had I not changed course, I would've graduated with a substantial amount of credit card debt on top of my student loans. As it was, I paid hundreds of dollars in interest -- and I'd have paid thousands if I didn't make it a point to pay off the debt ASAP.
The CARD Act of 2009 changed some of the rules to restrict marketing to college kids and make getting credit harder -- but there are still plenty of student cards young people can qualify for. Opening up too many cards at any age is a big mistake because it can make it too easy to get deeply indebted. Plus, each time you open a card, you get an inquiry on your credit report and reduce the average age of your credit history -- both of which can hurt your credit score.
2. Missing a payment
One of the big problems with having so many credit cards is that it can be hard to keep track of all of them. This ups the chances you'll miss a payment -- which is exactly what I did. I paid my Limited store charge, but not my Express card, and I ended up with a 30-day delinquency on my credit report.
That delinquency stuck with me for years -- after I graduated, through law school, and into buying my first car and home. While it's finally dropped off my report now, I had to look at evidence of my youthful mistake every single time I checked my credit report for a long time.
A single missed payment can drop a good credit score by more than 100 points, so avoiding this mistake is of paramount importance. I now have automatic payments set up for all of my credit cards every month so I can never make a careless error like this again.
3. Closing old cards
You'd think the one bright spot of opening all those credit cards in college is that I'd have a long account history and an old average age of credit -- which would help my credit score.
Sadly, this isn't the case. The average age of my credit history is just five years and I definitely graduated from college longer than five years ago. The problem is, when I paid off all those cards, I closed every one. It wasn't until my second year of law school that I applied for a new credit card again.
Had I left those old accounts open since they had no annual fee and were costing me nothing, I'd have a dozen cards over 15 years old and my credit score would be higher thanks to my longer average age of credit.
Closing old accounts also hurts in another way -- it reduces your available credit. Credit utilization ratio is one of the key factors in determining your credit score and it's determined based on the amount of credit you use relative to the amount of credit you have. Having a bunch of accounts open that you don't charge anything on could help to create a much lower credit utilization rate.
Don't make the mistakes I did
Today, my credit score is in the low 800s -- I've finally overcome my youthful errors. But it took years of diligently paying bills, keeping my credit usage low, and not opening too many new cards to get my score up. And had I not made these three errors, I'm sure my score would be even higher today.
To avoid these mistakes, and others like them, make sure you understand how your credit score is determined, use credit responsibly, and avoid missing payments. Your resulting high credit score will make the effort worthwhile.
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