Better Information Retention

 

 Top credit mistakes

Before you skip ahead, take a moment to read this informative blog post on what you're likely to get wrong when applying for credit. You don't want to commit these easily avoidable mistakes!

When it comes to borrowing money and receiving other types of loans or financial assistance, credit can be confusing and difficult. With so many terms and conditions associated with this type of borrowing, it's easy for those with no knowledge of finance or the world of personal finance in general to make some common errors. This is unfortunate because missing out on one point can cost borrowers time and money later on down the line due to any number of things like missed interest payments or late fees.

These common mistakes can be avoided with some basic knowledge about how credit works; although people make mistakes every day, you can stop yourself from making them by arming yourself with knowledge. Credit is a social system that operates based on rules and regulations, and learning about these will allow you to avoid the common pitfalls and apply for loans in a way that won't result in trouble.

1. Not reading the fine print

This one is a biggie because it could define whether or not you can get approved for the loan in the first place. There are a lot of financial products and loans out there, and they can pretty much all be broken down into two categories: the ones that require you to disclose certain information to lenders so that they can evaluate whether or not you're a viable candidate, and the ones that don't. The ones that will allow you to get approved without having to hit up your bank account and other personal information are called secured loans. This means that when you apply for them, the lender wants something of yours in order to be able to cover parts of the costs associated with the loan. This could be a security deposit, a promissory note from you, or maybe a loan that's secured by something of yours. Because they want something of yours, these loans will require you to disclose certain information about yourself and your finances.

This isn't always the case for unsecured loans, which are the ones that don't require any type of personal guarantee or other type of security to back up the funds that you're requesting. This can make them significantly easier to acquire since you won't have to provide information about yourself and your finances in order for them to grant approval to fund. They just want to see that you're a good credit risk, for example. It's important to understand both of these types of loans in order to make sure you're not inadvertently applying for one that requires specific information.

2. Telling the truth about your finances (or not telling the truth)

This is a more significant mistake than the first because it deals with trust and honesty. When you apply for a loan, you need to tell the lender everything they need to know in order for them to be able to decide whether or not they want to give you money. Not telling them everything is called lying or misrepresenting yourself. Lying doesn't just get you in trouble, but it can also be a really bad idea when it comes to applying for financial assistance.

The most obvious example of this is not being truthful about your income or even exaggerating things like how much money you make on a regular basis. This could put you in the position of having to pay additional fees and interest that you wouldn't have had to pay if you were honest from the very beginning. You also run the risk of having your application for loan denied completely if they feel that you lied to them.

Another example of misrepresenting yourself is not disclosing information about certain assets that you may have, like a retirement fund. If the lender has no way to figure out what's in your account, they might come to the conclusion that the money you're requesting for a loan is really just going to disappear once it goes into your account. Because of this, they might refuse to give out money even if they want to and file paperwork that says so.

The importance of telling the truth about your finances can't be overstated. The money you request could be crucial and could even mean the difference between having enough funds for food and shelter every month or going without for those unexpected expenses. It's important to stay honest and avoid lying about the way you use your money.

3. Not having an emergency fund

Having an emergency fund is one of the ways that you can avoid some common credit mistakes and make sure that you're not making them. This type of savings account is exactly what it sounds like, an account that helps you get through situations in which your finances are affected negatively by something unexpected, like a layoff or a car accident. A good emergency fund should be enough to cover any posibilities for at least several months; this means that it should be able to cover any bills, rent (if applicable) and even still leave you with some extra cash in case there's something else that comes up.

It's a good idea to set up an emergency fund for the sheer purpose of keeping yourself financially secure. Many people don't take this seriously and end up going hungry or are without necessary items because they couldn't afford to pay for them. It's important not only to have one, but to also make sure that you keep it stocked and functioning properly so that you can use it when the need arises.

4. Being overly optimistic

This is a more common example than the first two and deals with patience and optimism. One of the biggest mistakes that people make when it comes to credit and loans is the fact that they get overly optimistic and think that they'll be able to pay everything off on their own terms. This kind of thinking leads to credit problems, which can lead to loans being hard or impossible to acquire in the future.

The reality is that paying your debt balances off on your own terms can be very difficult because of various reasons, none of which being able to pay everything you owe immediately after you've received a loan.

Conclusion

Knowingly incurring all these mistakes is a rather unfortunate thing to do but it can make a huge difference as far as what you have access to by way of loans. There are many different types of financial assistance out there and knowing which ones are available and which ones aren't is important, especially when it comes to obtaining credit. If you can get into the habit of doing everything right when it comes to getting into the position of being able to pick and choose what kind of loan you'll be taking out, then you'll be in a much better position financially when this time comes.