When it comes to your finances, even the smallest mistake can come back and bite you on the behind in future. Whether it happens in a couple of months or in a couple of years, not taking due care with your finances now is going to hurt later.
What is shocking about this whole situation is that lots of Australians either don’t care, or aren’t aware of the problems they might be causing themselves. Whether it’s making late payments, racking up debt on credit cards, opening a large number of different credit accounts, or failing to shop around before taking out a personal loan, almost everything you do that is related to money will have an impact on you in the future.
Here are some of the bad money moves you might make that can wreak havoc with your credit file and potentially influence the rest of your life.
Missing or Making a Late Bill Payment
Many Australians would view missing a payment or paying a bill late as a trivial matter. While paying your mobile phone bill or your utility bill a couple of weeks past the date it was due may not seem a problem – especially if your services weren’t affected and you didn’t have to pay a financial penalty for paying late – it will be noted on your credit file.
Making a late payment once in your lifetime isn’t going to cause you a problem. However, if you make a habit of paying late, these are quickly going to reduce your credit score, while lenders that look closer at your credit file beyond the score will simply assume you’re unreliable and be less willing to lend to you. How would you feel having to tell your partner that you might not be able to get a mortgage because a couple of years ago you couldn’t be bothered to pay your phone bill on time?
The funny thing is that many occurrences of late payments can easily be avoided, they only happen because payment dates fall before payday. Just call your account provider and explain the situation, and they’ll change it for you!
A simple phone call or two to make your life easier now and avoid nasty consequences in the future. Sounds like a great idea to us!
Taking Out Limited Time 0% Interest Deals
“Interest free credit for 12 months!”
“0% on purchases for 24 months!”
“0% 18-month balance transfer deal”
Do these deals look familiar? You’ve probably seen one recently, and you might have even seen one today.
There’s nothing wrong with 0% interest deals, provided you make sure the balance is repaid in full before the interest free period expires. The big problem with these deals is that when the interest free period expires, interest is applied from the date the account was opened, not the date the interest free deal stopped. This means you could add a huge amount to your balance, and suddenly find the repayments aren’t affordable.
Even if you can keep up the payments, your high exposure to debt will reduce your credit score and make lenders less likely to offer you further credit in future.
If you can’t afford to repay the full balance on a 0% deal before the deal runs out, don’t be taken in by it.
Moving Debt to Save But Continuing to Spend
Aiming to reduce your debt, either by moving your credit card debts to a 0% balance transfer card or by taking out a debt consolidation loan, is a positive move to make.
However, many people will move their credit card debts to either of these options, but then start once again racking up the balance on those cards! The minute you start using these credit cards again you’ve undone all the good intentions of trying to make yourself debt free and will soon be facing the financial problems you were originally looking to escape.
Taking Out a Payday Loan
Payday or short term loans can be disastrous for your credit file, as well as costing you a hell of a lot of money.
While some people are driven to these types of loans out of desperation, others use short term loans to avoid missing a payment or making a late payment. On balance, one late payment is going to do less damage to your credit file than having a payday loan on there will. Remember how easy it is to avoid late payments, too, if your payday falls after when your accounts are due.
The problem with payday loans is that other lenders view using them as an inability to manage your finances in the short term, thus they’re reluctant to provide any larger volume or long-term borrowing. Some mortgage providers may decline you even if you’ve taken out one payday loan over a period of two years.
Payday loans are expensive, potentially disastrous for your credit file, and just not worth it.
Serious Financial & Credit Infringements
If your financial problems escalate, you could end up with serious financial and credit infringements, which may include accounts defaulting, you having court judgements against your name, or perhaps even being made bankrupt.
These are three outcomes that are very possible if you continually miss payments or simply decide that you are no longer going to make the repayments required on a specific account.
Whereas the odd missed payment won’t make much difference, if they escalate to a default or court judgement these will stay on your credit file for five years, and seriously hinder your ability to take out even a new mobile phone contract, let alone something bigger like a personal loan or a mortgage.
Avoid Bad Money Moves and Enjoy a Brighter Future
Whether you simply need to be more organised, if you should take the time to make a couple of phone calls to change payment due dates, or are experiencing financial difficulty now and need to speak with your creditors, making the right moves can help to secure your financial situation and put you on the path to a bright financial future.
Continuing to make bad moves may seem of little consequence now, but they could come back to haunt you in the very near future.
Disclaimer: This article contains general comments and recommendations only. This article has been prepared without taking account of your objectives, financial situation or needs. Before taking any action you should consider the appropriateness of the comments made in the article, having regard to your objectives, financial situation and needs. If this article relates to the acquisition, or possible acquisition, of a particular credit product you should obtain and consider the relevant disclosure documents before applying for the product.