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Credit Mistakes Can Leave You Grasping in a Scary Place

Credit mistakes can haunt you, leaving you in a scary financial place for years to come. Simple, sensible precautions can save you from unnecessary torment.


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James L Katzaman

2 years ago | 5 min read

Ignoring money problems will not make them go away

Photo by Daniel Jensen on Unsplash

Credit mistakes can haunt you, leaving you in a scary financial place for years to come. Fortunately, simple, sensible precautions can save you from unnecessary torment.

Michelle Lambright Black, credit expert and founder of CreditWriter.com, specializes in offering clear, nonjudgmental advice to help anyone navigate any credit situation. She joined the experts at consumer credit reporting company Experian to give lifesaving financial tips.

You might be frightened when you see a bunch of charges that you know nothing about reported against you and not being paid, which is killing your credit.

“Don’t make the mistake of only finding out what’s on your credit report when you apply for financing,” Lambright Black said. “If you do, you might find unpleasant surprises like late payments, identity theft, collection accounts, credit errors and more.

“Your best bet is to check your credit report regularly,” she said. “You can claim all three of your reports free of charge at Annual Credit Report.com. If you discover mistakes, you can dispute them with the appropriate credit bureau.”

According to Experian, your credit report is often the first indicator that you are the victim of identity theft. If you find an address that you don’t recognize or accounts you did not apply for, these could be signs of identity theft.

Out-of-Control Buying

Impulse buying is a huge risk because it piles up fast. If you don’t control your emotions, your next statement will paralyze you with shock.

“Spending without a plan — aka budget — can create a bigger credit card bill than you can afford to pay,” Lambright Black said. “The average credit card interest rate is 17.13 percent, according to the Federal Reserve. So, revolving unpaid credit card debt can cost you a lot of money.

“On top of the expense, credit card overspending could hurt your credit score,” she said. “When your credit card balance-to-limit ratio — aka credit utilization — increases, your credit score may move in the opposite direction.”

Experian states that operating within a budget can help you keep your finances on track. Impulse purchases, especially small ones, add up quickly and are sometimes forgettable, which can lead to a real shock when you receive your monthly bill.

The Ask Experian blog has tips for establishing a budget that can make your monthly bill paying a little more manageable.

Debt skeletons are never really dead. They barge out of the closet as a bad Christmas Future.

“Unpaid debts can cause you a lot of problems,” Lambright Black said. “Negative credit history, bad credit scores, getting sued and having your wages garnished are a few of the potential issues you could face when you fall behind on your financial obligations.

“Can’t afford to pay a debt? The worst thing you can do is ignore it,” she said. “Instead, consider your options. Your lender might work out a hardship agreement. You could also look into credit counseling, debt settlement, debt consolidation or — in extreme cases — bankruptcy.”

Ignorance Is Not Bliss

The Ask Experian blog states that paying off the debt you owe is important. An account that appears as “paid in full” on your credit report shows that you can fulfill your debt obligations. Ignoring your debt will lead to collections, damaged credit and worse.

Stay current on debt payments. When you miss them, the creditors jumping out of the bushes are not your imagination.

“The best way to avoid getting overwhelmed by credit card debt is to decide how you want to spend your money ahead of time,” Lambright Black said. “You need a budget. With a spending plan, you can enjoy the many benefits credit cards offer without going into debt.”

Credit cards can be a valuable financial tool when managed properly. It’s important to only charge what you can afford to pay off each month. If you find yourself in debt that is difficult to manage, the Ask Experian blog has steps you can take.

Zombie debt is the living dead on steroids because it comes out at all times of the day. Flesh eating is just an appetizer.

“When you don’t pay your debts, creditors might sue you,” Lambright Black said. “However, there are debt collection time limits based on your state of residence. If a debt collector tries to sue you after a debt is time-barred, it’s a form of zombie debt — trying to come back from the dead.

“The best way to avoid zombie debt and other types of debt collection is to pay your bills on time,” she said. “If you’re already in default on your debts, contacting the debt collector to settle might protect you from further collection efforts.”

Search for Limitations

Unfortunately, finding the statute of limitations in any state is complicated.

“It depends on the type of debt, state law or the state listed in your credit agreement,” Lambright Black said. “You may want to consider consulting with an attorney. The Federal Trade Commission also provides helpful insights.”

In addition, Credit.com shows how the statute of limitations on debt varies by state.

As explained in an Investopedia article, zombie debt is debt that has fallen off your credit report. It is beyond the statute of limitations, but a debt collector is still attempting to collect on it.

Balanced budgets are silver bullets against the debt boogeyman.

“When you plan your spending, it’s easier to avoid debt and pay off debts you already owe,” Lambright Black said. “A budget lets you prioritize what matters to you and makes it easier to say ‘No’ or ‘Not now’ to extra purchases that could get in the way of financial goals.”

A budget puts your money to work for you, according to Experian. Establishing a budget gives you a clear understanding of your income and expenses. If in the process of paying off debt, you can create a budget that can help you achieve your goals.

“Establishing credit from scratch isn’t too hard with the right plan,” Lambright Black said. “You might consider starting with a secured credit card or credit-builder loan.”

The Ask Experian blog states that building your credit is essential to becoming visible in the credit ecosystem. Some ways to build credit include applying for a credit card, becoming an authorized user, applying for a loan or a secured card.

Right to Dispute

Credit repair is tricky because you might have to rise above past mistakes as well as work extra to undo damage if bad actors toyed with your identity.

“You have the right to dispute credit errors on your own,” Lambright Black said. “If you prefer to hire someone to manage the process, be prepared to pay. Find a reputable company, and have realistic expectations.”

Credit repair can be costly. Jennifer White, who specializes in credit education and awareness at Experian, writes that there is nothing a credit repair company can do for you that you can’t do for yourself for free.

Stuck in a credit nightmare, there are many free or low-cost services that offer advice.

“Take a deep breath,” Lambright Black said. “You can improve any credit situation with the right plan. Consider talking to a certified credit counselor for guidance. Find reputable resources to help you review your options.”

According to Experian, credit issues are not permanent. Despite where you currently stand, your scores can improve with action and patience. The company’s blog has 21 ways to improve your credit.

If you feel like everyone is watching you online, don’t worry. They are. Cybersecurity bad guys are lurking, waiting for those who let their guard down.

Experian advises everyone to have antivirus protection up to date, using strong passwords.

Review your credit reports often for signs of identity theft,” Lambright Black said. “Consider placing a credit freeze on your three reports.

“You can’t stop someone from stealing your information,” she said. “You can make it harder for identity thieves to use your personal information without permission.”

About the Author

Jim Katzaman is a manager at Largo Financial Services and worked in public affairs for the Air Force and federal government. You can connect with him on TwitterFacebook and LinkedIn.

Disclaimer

This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.

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James L Katzaman

Jim Katzaman is a charter member of the Tealfeed Creators' program, focusing on marketing and its benefits for companies and consumers. Connect with him on Twitter, Facebook and LinkedIn as well as subscribing here on Tealfeed.


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