4 Ways People Affect Their Credit Before They Turn 30

Picture: Dylan Gillis

According to a new credit survey, nearly 70% of Americans have made a significant financial error affecting their credit before the age of 30. Young people with limited information about how finances work might not realize that the decisions they make can matter in the long term, but they just might.

A low credit score can sometimes make securing competitive loan rates, insurance, and even apartment leases challenging. While your financial situation might be the last thing you consider while studying, it might be worth avoiding the following mistakes to keep your credit score healthy.

Missing a Credit Card Payment

Missing a credit card payment might not seem like a big deal, but it might lower your credit score more than you think. If your credit score starts high, a 30-day or 90-day missed payment can sometimes cause a dramatic drop of upwards of 60 points to well over 100. If you have a lower score already, the drop can be less significant but still damaging.

However, if you miss a payment, there are things you can do to limit the adverse effects. Pay at least the minimum as soon as possible, call your card company to negotiate your payment, and do your best to avoid making another late payment.

Missing a Loan Payment

Missing a loan payment can often be just as damaging as missing a credit card payment. Late payments can drop your credit score dramatically in some cases, and the blemish can remain on your record for up to seven years.

Alongside damaging your credit score, you might also be penalized with late fees, which might exacerbate your poor financial situation. Lenders generally only report late payments if you’re 30 days past due, so you might be able to avoid severe consequences by paying in that window.

Defaulting On a Loan

Defaulting on a loan describes when a borrower doesn’t pay back the funds outlined in the initial agreement. For example, if you borrowed money to purchase a laptop for university and didn’t pay it back when it was due, you would be defaulting on that loan.

A default entry stays on your credit report for seven years and can significantly impact your credit score. This is especially true when you would have already experienced a credit drop with missed payments before the default.

Having a Debt Sent to Collections

Many companies send their debts to debt collection agencies when they’re 120 to 180 days overdue. At this point, a third party does its best to collect the debt on behalf of the company. A debt collection is one of the most impactful entries on a credit score and will remain there for seven years.

The Fair Credit Reporting Act prevents consumer reporting agencies from reporting negative information older than seven years old and bankruptcies more than 10 years old. However, if you attempt to take out a loan or even open a cellphone account before those periods are up, lenders and creditors will have access to this information and might base their decisions on it.

Many people make poor financial decisions when they’re young without realizing they can have consequences when they’re older. Now that you’re aware of the most damaging financial mistakes, you might be in a better position to avoid them.

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