Biggest Money Mistakes People Make – Avoid These 10 Credit Killers

Biggest Money Mistakes People Make

Biggest Money Mistakes People Make

A strong credit history is your lifeline to gaining affordable lending. It is of particular importance when making a major purchase such as a home. However, maintaining good credit requires making payments on time and avoid the biggest money mistakes people make.

With good credit, you have much less to worry about when it comes to your finances. Unfortunately, there are far more credit killers than credit enhancers. Here are the 10 biggest money mistakes people make:

wrong way sign


Signing as a joint borrower on a loan or credit card could potentially help your credit. Unfortunately, if the payment responsibility belongs to the primary borrower, your credit could deteriorate if they fail to pay. You are responsible for the loan just as much as the primary borrower, regardless of any agreement you made.

Balance Transfers

Balance transfers are one of the biggest money mistakes people make. They can ruin your credit if not used wisely. Once you qualify, these transfers allow you to shift a credit card balance to a low or no-interest promotional card. It can be beneficial when your original account has a high interest rate, and your balance is carried each month.

The issue with balance transfers is that you may need to apply for and accept a new credit card. It automatically creates a new credit inquiry on your report. Balance transfers also equate to shifting your debt around, without necessarily paying it off. Unless you pay off your balance transfer within the promotional period (usually 12-21 months), it could harm your credit.


Going to court to absolve your debts can help you wipe the slate clean. However, it usually turns out to be one of the biggest money mistakes people make. Lenders view a recent bankruptcy as a blemish on your credit history. It will make you less likely to qualify for new credit even if you have no other debts. The bankruptcy will remain a black mark on your credit for at least seven years. Applying for a loan, credit card, or buying a new home will, therefore, become more complicated during this period.

letters spelling out bankrupt

Cash Advances

The ability to get a cash advance from your credit card can be helpful when you are short on cash. However, cash advances eat into your credit limit. It inevitably increases your credit utilization and lowers your credit score. Furthermore, cash advances carry much higher rates, which makes you less likely to pay your credit card bill in full. The resulting missed payments will negatively impact your credit score for a long time.

 Payday loans

To get a payday loan, you only need a recent pay stub. There is no requirement for a credit check or income verification. These loans have no immediate impact on your credit report and lenders rarely report to credit agencies. However, the ease of securing them can lead to a vicious cycle of lingering debt. Furthermore, these loans have high interest rates, which lower your ability to pay on time. When this happens, payday lenders sell off the loan to debt collection agencies, which will negatively impact your credit.


Credit utilization plays a significant role in the calculation of your credit score. How you use your credit accounts is of great interest to new lenders. Although proper use of credit facilities contributes positively to your credit score, overspending can negatively affect it. Maxing out your credit cards and then taking too long to pay will lower your credit score.
You can easily to get into financial difficulties when using revolving credit accounts. It is especially prevalent during the holidays when spending on gifts or travel can go overboard. Overspending damages your credit score and quickly shows up on your credit report.

expensive red ferrari

New Credit

Lenders look unfavorably upon creating several credit accounts in a short period. It indicates a potential cash flow problem in your finances. Lenders can still new credit inquiries into your credit report, but may not affect your score. Too much credit also gives you more leeway to overspend, which impacts your credit utilization percentage and tarnishes your credit. It also increases your chances of falling behind or failing to settle your debt obligations.

Closing Old Accounts

Calculating your credit score also depends on the number of credit accounts you have and the duration they remain open. A long credit history represents less risk to lenders, as long as all other credit calculation factors are favorable. It may be tempting to close that old retail store credit card you hardly use, but could impact your score. Keep your old credit accounts open as long as possible to boost your credit score.

Credit Counseling

If you are struggling with debt payments or errors on your report, you might consider using a credit counseling service. Credit counseling helps you manage your finances responsibly, and gives you information on how to gain a healthy score. While it may not impact your credit score initially, some results from your credit counseling might do so.  If credit counseling is part of your debt management plan, the results may be included in your credit report.

adviser shaking hands with client

Approach credit counseling with caution as promises to overhaul your credit profile may worsen your credit situation. Some counseling agencies may help you to manage your finances more responsibly. However, many of them are out to make a quick profit. Be wary of firms that claim to overhaul your credit profile in a matter of hours or days. Avoid agencies that promise to have negative information erased from your report siting obscure laws or recommending aggressive settlement tactics.

Read the fine print and ensure the credit agency is credible before agreeing to their services.

Tapping Into Assets

Credit agencies do not collect data on your checking, investment or retirement accounts, making it tempting to tap into them. Although this may help in the short-term, you might end up back into debt if you don’t control your spending. Think twice before you draw upon your assets, and focus instead on limiting your expenditures.

Other lenders tend to follow suit when one misstep gets reported to credit agencies. Credit card issuers will assess a penalty when a payment is overdue, increasing your borrowing costs. Ongoing credit checks by other lenders will have the same impact, which further damages your credit situation.

Therefore, to maintain a strong credit profile for current and future lenders, avoid these 10 biggest money mistakes people make.

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  1. Hi Patrick,

    This is such a good article! I am absolutely going to share this with all my friends on Facebook & Google Plus.

    Many people today lack the financial education to survive and prosper. I did not know how bad spending habits could affect my credit score.

    A credit score is actually a financial report card on our credit habits. If we “fail” at it, we risk receiving any trust from financial institutions to finance the things we need in life, like a car or new home. 

    I really learned a lot from this post, Patrick. Keep writing more of these great articles!


    • Hi Wilson – Thanks for all of your positive comments.  It’s rewarding to know that the content we provide here is helping people out with their financial education.

      You are very correct in your statement that today many people lack financial education.  That’s one of the reasons why I created this site.  To help others gain knowledge about their credit and to educate about what to avoid to minimize mistakes that can harm your credit score.

      There’s lots of information in this post about what kind of mistakes to avoid to keep your financial house in order. So, keep it handy and periodically monitor your credit score. In addition, pull a free credit report at least once a year.

      Here’s a link to that site.  Bookmark it and order a report from one of the big three credit agencies each year.


      Thanks for sharing the article with your friends on Facebook and Google Plus.



  2. Great article on the biggest money mistakes people make Patrick, there really are some credit killers here!

    I would say that bankruptcy would just about be the biggest credit killer on your list, but things like pay day loans and cash advances are a massive trap that I see a lot of people getting caught up in these days.

    I guess it comes down to the old saying: “spend less than you earn and invest the rest”

    Unfortunately, not many people follow this advice and therefore get caught up in one of these scenarios!

    Great post, thanks 🙂

    • Hi John – Great comments.  It looks like you get it and can recognize a credit killer when you see one.

      I see these mistakes all the time, particularly when clients apply for a home loan and then wonder why they can’t get approved.

      As you point out, bankruptcy is the biggest credit killer of them all and if possible should be avoided at all costs.

      Maybe more folks will follow the advice on my site and use that information to reduce their exposure to these credit killers and other mistakes to improve their credit standing.

      I like that old saying “spend less than you earn and invest the rest”.  If more of us would apply this advice to our everyday financial decisions, we would be a whole lot better off.


      Credit Squared

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