Don't let credit score pitfalls hurt your personal finances. Laura answer reader questions and covers 7 traps that could upset your credit if you’re not looking out for them.
Maintaining good credit scores is a fundamental part of a healthy financial life. Having no or poor credit means you could:
- Have trouble getting a loan or mortgage
- Pay more for insurance
- Get turned down to rent an apartment
- Be denied certain government benefits
- Miss out on job opportunities that require a credit check
For the unwary, there are many credit pitfalls that can hurt you. In this post I’ll answer reader questions and cover 7 credit traps that could upset your finances if you’re not looking out for them.
Free Resource: Credit Score Survival Kit—download Laura's tutorial for strategies to build and maintain excellent credit for life!
7 Credit Score Traps You Should Avoid
Pay attention to the following situations so they don’t come between you and a great credit score.
Trap #1: Getting talked into a retail store credit card
A Money Girl Podcast listener named Rhianne says, “I was recently kind of tricked into getting a retail store credit card because the clerk never mentioned the word credit. I closed the account as soon as I got home, but am very stressed out about it. Will I still owe money on the account?”
Signing up for a retail card at check out is one of the most common credit traps. You know the drill. We’ve all heard the enticing question, “Would you like to save 20% on your purchases today?”
There are pros and cons to retail store cards to consider before you make a split-second decision that may not be in your best interest.
A couple of major advantages you typically get with a store card are rewards—such as discounts, coupons, cash back, special promotions, or free shipping—and the opportunity to build credit (when you use the card responsibly, of course). I have a retail credit card with a store where I shop frequently and it saves me a lot of money.
The disadvantages include having a new spending temptation to use all those rewards, low credit limits, high interest rates, and a ding to your credit for making a new application.
Hard credit inquiries stay on your credit report for up to 2 years, which means they can hurt your ability to qualify for other accounts you may want or cause you to pay higher interest rates for them.
Rhianne asked if her canceled store card would cost her more money. Once she pays off the balance, no more interest will be charged, and the account will be dead. But even though she closed the account, it will remain on her credit report for up to 10 years. Cancelling a credit card, even immediately after you get it, doesn't make it disappear from your credit history.
See Also: Best Tips to Improve Your Credit Score