Welcome to my post “Are you under 21 and interested in establishing credit? Here are 7 mistakes to avoid!”. In 2012 I got my first credit card and didn’t know a lot about credit. There were several mistakes that I made with my credit cards and credit. I listed a few down below and I hope that this post will help you to not make the same mistakes I did!
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1. Getting a Credit Card Because You Want to Fit in. When I first started college, I was eating lunch with one of my friends from high school. We got out of class early and she wanted to grab some Chipotle. We got to the register and I offered to buy her lunch. She respectfully declined because she had a credit card she wanted to use. I was shocked that she had a credit card and started asking her questions on how she was able to get one. She told me her dad added her as an authorized user on his credit card in high school to help her build credit. I was very puzzled, and I started to think why my family had not done that. My first mistake was getting a credit card to fit in. What I should have done is consult with a professional or someone with great credit standing. Then I should have researched on my own and talked to my family before applying for a credit card. This brings us to my next mistake.
2. Hiding That You Applied for a Credit Card from Your Family. It was October 2013 and I just got home from work. I showered and went to the dinner table to eat. As I was eating, I saw a commercial about Capital One and the credit cards they were offering. I used that opportunity to ask a family member about credit and credit cards. The responses I received did not sit well with me. I even asked a family member what their credit score was? The response I got back was “It’s none of your business”. Okay I thought… fair enough… but I thought to myself, I will not be left behind. So, I made up my mind to apply for a secured credit card with Capital One. I also decided I would keep this decision to myself. This was a mistake simply because if you fall on hard times, which I did, it would be hard to get family to help make your monthly payments if they are unaware of you having the credit card in the first place. My secured credit limit was $300, meaning I gave Capital One $300 deposit to put on a card for me to use. I don't even want to know what could have happened if I increased my spending limit and gave them $1000 instead. We will talk about this a little more later.
3. Swipe, Swipe, Swipe…Credit Utilization? When I got my credit card in the mail. I remembered it was on a Friday. I remember this because I got paid that same day. I thought to myself “I got paid $600 and I have my credit card with $300, so I have $900!” Wrong! I got paid $600 and had a credit card with a $300 credit limit. That meant I only had $600 to spend. Also, when considering credit utilization, the recommendation is that I should only spend less than 30% of the $300 credit limit. That way I can better manage paying off my credit card each month and not carry a balance around. I did not learn about credit utilization until March 2014 and I had the credit card since October 2013. Can you imagine if I got paid $600 and my credit card was $1,000 or more? That would have been an absolute disaster.
4. Missing a Payment and Being Negligent. So, I learned about credit utilization and I was doing a great job in spending under $90 a month and paying my balance off on time. I decided to un-enroll from the auto pay feature on my credit card, because I was planning on changing banks. Also, I planned on going on a trip with some friends and I needed that $90 to add to my travel funds. I decided “Well it's only $90, I can just make the payment on the credit card next month. I did not max-out my credit card, so I should be fine right? Wrong! If you do not pay the balance off, you still need to make sure you pay the minimum amount the credit lender will allow so that your payment is counted as on time! So, I skipped a month and decided I would pay it the next month so I can use that $90 to spend on food and gas on my trip. This was an extreme case of negligence and it showed that I was not disciplined in having a credit card. I was negligent and being negligent with credit comes with a heavy price.
5. Not Paying for a Credit Card at All Because You Personally Can’t. In 2014 I got accepted into a university and moved from home into my own apartment. Then reality set in that I was getting a taste of adulthood. I had bills and rent to pay. After two months of living on my own, I fell on hard times. I could not afford to pay for car insurance or my credit card. I told my family and they pitched in to help but I was not making enough to pay off my maxed-out credit card. I decided to do the worst thing anyone can do with credit…Owe money and ignore the credit card company calling because you could not pay them. After 7 months of dodging them I decided I was going to use my tax refund and get a loan to pay off my debt and get ahead.
It was 2015 and I went in to apply for a bank loan. They pulled my credit and the bank representative looked at me and said, “when was the last time you looked at your credit report?” I told him I never looked at it before. His exact response to me was “There’s no way in hell your parents know about this.” I looked at my credit report and it was wrecked. I saw collections, delinquency, late payments, you name it! I also saw something else. An account that did not belong to me. Moral of the story is, never ignore a call from the credit card company. Answer the call and tell them your situation and see if there is anything they can do to help you. If I had told my family I was going to get a credit card, almost all the mistakes above would not have happened. Avoid delinquencies and having your account sent to collections like the plague.
6. Not Monitoring your Credit as You Should. I had not been checking my credit report. I knew that after I spoke with the bank representative that my credit was screwed. He explained to me that I have a delinquency on my credit report, and it will be on my credit for 7 years. Not only did I have the Capital One, but I also had another card that I did not know about that was opened in 2014 and had been delinquent since it was opened. If I had been monitoring my credit, I would have seen the unknown account and have it disputed right away. Even though the Capital One card was paid off the delinquency from me not making a payment for all those months would be on my credit report for 7 years. As for this other suspicious credit account, another mistake was made. See mistake #7 for more details.
7. Paying for an Account That Was Not Yours Because You Were Threatened with Legal Action by a Collector. Remember the calls I was ignoring? Apparently, they were not only from Capital One. Some of the calls were from a retail card company that I did not sign up for. I answered a call thinking it was Capital One giving me good news on my credit report. Instead it was a collector telling me I needed to pay the debt owed to a retailer and if I did not there would be legal action. I was nervous and scared and said the account was not mine. I did not open the account, but the agent kept on pushing and pressuring. I hung up and blocked the number. A few weeks went by and I noticed that the number stopped calling. My mother found out about the retail card through the mail and decided to pay off the balance. She was upset and asked why I did not say something earlier. I told her that I did not sign up for this account, but they were threatening legal action. Even though I was happy that I would not be getting calls from any more collectors, it did not feel right that I paid for a debt that did not belong to me, out of fear. Now I have two delinquent accounts that would be on my credit report for 7 years.
How Are Things Going for Me Since My Mistakes?
Now it is 2020 and I have learned so much during these last few years rebuilding my credit. I have a home and was able to help my wife get a car. We have been able to stay away from bad credit and financial decisions. I’ve been able to teach my wife what I’ve been through and what I’ve learned from the mistakes I made and so far, so good. Mistakes can be devastating but it can also help you to grow as an adult making difficult financial decisions. A question I get asked most when I talk about my past credit mistakes is; what would you have done differently? Well, first thing I would have done is talk to my family about credit or family friends and have someone who knows what they are doing teach me the essentials. Also keep in mind that some parents also struggle with credit and may not want to share that with you. So, I would say, keep an open mind, and find someone who is comfortable about discussing their finances with you in an educating way, not that you’re trying to be all in their business.
Credit is a marathon not a race. I rushed into getting credit and had no clue what I was even getting myself into. I was blinded by the excitement of being independent and taking things into my own hands and had to pay a heavy price. Adulthood is serious business, and it can become overwhelming at times, but you can build credit wisely and avoid my mistakes.
Thanks for reading my post “Are you under 21 and interested in establishing credit? Here are 7 mistakes to avoid”. I hope that this post will help you to not make the same mistakes I did when trying to build credit. There is a right and a wrong way to go about establishing credit. If your experience with credit, what are some credit mistakes that you made? What did you do to fix those issues? Please feel free to share and comment below. Also please subscribe and follow me on social media! Click here for my next post “How to monitor your credit for free!”