The Worst Credit Mistakes the Middle Class Keeps Making (and What to Do About It)


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Written by Guest | Last Updated February 24th, 2020
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Guest Post by Jeff Rose

The middle class makes plenty of financial mistakes, including not saving enough money for retirement. But the financial errors most of us make extend far beyond long-term financial planning. We also have too much debt and not enough saved — often to our own detriment.

But the credit mistakes the middle class makes may cause the most havoc in our lives. Here are some credit mistakes that are holding everyone — including the middle class — back:

Spending on credit cards without a plan

While it’s far too easy to wind up with credit card debt due to a job loss or health scare, plenty of folks wind up in debt due to their own poor planning.

How do I know? According to the most recent data, Americans owe approximately $6,534 on bank-issued credit cards. That’s a lot of debt per capita, but it’s not surprising, either. The reality is, credit cards make it easy to buy stuff you don’t really need and rack up balances you can’t afford to repay.

How to fix this: Make sure you’re only using credit cards for purchases you have a plan to pay off and never, ever use credit for budget shortfalls. If you find yourself overspending each month, you may need to find areas to cut back on and learn to live within your means.

Not worrying about their interest rate

The average credit card interest rate is well over 17 percent, but it’s easy to find credit cards that offer 0 percent APR on both purchases and balance transfers. Unfortunately, way too many people don’t think their APR matters — and they pay the price.

Look at it this way. If you had $10,000 in credit card debt with an APR of 17 percent and you made a minimum payment of $200 per month, it would take 88 months for you to become debt-free and you would pay $7,518 in interest along the way.

With a balance transfer card, on the other hand, you could avoid interest for anywhere from 9 to 21 months. Some balance transfer cards also come without the typical 3 percent or 5 percent balance transfer fee, meaning you can use this time to pay down debt for free.

How to fix this: Consider switching to a card with a lower interest rate and fees.

Believing credit myths

There are a ton of credit myths floating around, and they can absolutely harm your credit if you believe everything you hear. For example, it’s frequently said that you need to carry a balance on your credit card for your monthly payments to help your credit score. This is false.

Some people also believe opening a new credit card will cause their credit score to plummet, when in reality, a new card periodically may temporarily ding your score by a few points but it will bounce back quickly.

Besides, there are no awards for having a perfect credit score. All you need to worry about is making sure your score is at least considered Very Good, which means keeping your FICO score above 740.

How to fix this: Don’t take credit advice from neighbors or friends. Do your own research to find out the truth.

Maxing out their cards

While your payment history makes up the bulk of your credit score, the second most important factor is how much you owe in relation to your credit limits. That’s why carrying a high balance and maxing out your cards can wreak havoc on your credit score. You can owe a lot of money and still have good credit, but you need higher credit limits to match.

If you owe $4,000 and have a total credit limit of $5,000, for example, your credit utilization is at 80 percent. If you owe $4,000 but you have total credit limits of $20,000, on the other hand, your utilization is only 25 percent.

How to fix this: Most experts suggest keeping your utilization below 30 percent to keep your credit in tip top shape.

Not trying to pay off debt

Finally, don’t forget how important it is to keep an eye on your credit card bills — and keep them in check. If you never wonder how much you charge each month and how much you can pay, it’s way too easy to let your balances spiral out of control.

That’s probably why all Americans — including the middle class — have too much debt. We use credit as a crutch and make the decision to worry about our debt later, but it has a way of catching up with us eventually.

How to fix this: If you have credit card debt, create a plan to pay it off. While you’re executing your plan, stop using credit and stick to cash or debit instead. If you want to get out of debt, you have to stop digging.

Jeff Rose is an entrepreneur disguised as a certified financial planner, author, and blogger.  He is best known for his blog and book, Soldier of Finance: Take Charge of Your Money and Invest in Your Future.

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