Bad habits are easy to fall into and can be nearly impossible to dig yourself out of. More specifically, bad credit habits can destroy your credit score, put you in debt and cause a number of other financial problems that threaten your stability and long-term goals.
But all it really takes to break a habit in most cases is some sound advice — and willpower. If you have the latter, we have the former.
However, you might not even know you’re practicing bad credit card habits. Read on to see if any of these poor habits apply to you and learn what the experts say about the most damaging ones. Once you’ve identified your bad habits, you can work to replace them with good ones and get your credit score on a path of improvement.
1. Not paying the minimum
One of the worst habits a person can do is not paying at least the minimum on their credit card balances each month. The reason is that the balance that is carried over will accrue interest at your regular APR, so you’ll have to pay the balance and its accrued interest the next month. And since your APR is a percentage, the larger your balance gets, the more interest you’ll earn and have to pay off.
“You should always pay at least the minimum balance,” said Michael Gerstman, financial advisor at Gerstman Financial Group. “And if possible, the full balance each month.”
Gerstman also suggests that if you carry a balance on a credit card, you should make an effort to pay it off before you use your cards again.
It’s so much easier to make the minimum payment than to figure out if and how much extra you can afford to put toward your credit card bill, said Marvin Smith, credit coach at DKR Group and author of “The Psychology of Credit.”
But when you’re paying only the minimum, you’re not making much progress toward paying off your credit card bill. And unless you have a very low balance or a 0 percent promotional APR, you’re probably paying much more in finance charges than you have to, he said.
Pay more than the minimum if you can, or at the very least, pay the amount required to pay off your balance in 36 months, which is also printed on your billing statement, Smith said.
2. Carrying a balance to ‘build your credit score’
One bad habit stems from a common myth that carrying monthly balances will help build one’s credit score.
In reality, doing this comes with added interest expense and no real improvement in your credit score, said Riley Adams, a licensed CPA and owner of Young and the Invested.
“Most of the criteria used to determine your credit score comes down to how consistently well you handle credit awarded to you over long periods of time,” Adams said.
Carrying over a balance only serves to earn you interest. Though technically an account could remain in good standing, as long the minimum payment is paid each month, interest charges will continue to accumulate as the balance is continually carried over.
You’ll eventually have to contend with that debt. If paying off that balance causes you to fall behind on your current balance, your credit score could quickly dip.
In the end, carrying a balance won’t help improve your credit score. If anything, it may lead you to miss a payment on your current balance and even lower your score.
You should always pay at least the minimum balance, and if possible, the full balance each month.
3. Paying late
Gerstman also notes that a lot of people pay their credit card bills late.
It is crucial, he said, to pay on time — every time — because late payments will adversely affect your credit score.
According to FICO, a late payment can cost you 80 or more credit score points. Why? Because payment history, one of the five factors that make up your FICO credit score, makes up 35 percent of your score. At that percentage, it is the most influential factor. The best way to display good payment history to issuers is to make regular and full payments for your credit card bills each month.
4. Shopping to ‘be happy’
On the purchasing side of credit cards, the greatest source of joy and misery of plastic money is that you can easily swipe and pay later. However, if you discover you don’t have the funds for your new designer suit, problems can arise.
Smith said it’s common for people to go on mood-based spending sprees.
Shopping to boost your mood creates a link between happiness and buying material goods, and it’s a link that can be hard to break.
We all have our creature comforts — those habits that, for better or worse, we indulge on a daily basis, Smith said.
“However, while a regular morning latte or a new pair of shoes might seem harmless, you’ve got to consider their effect on your bottom line,” Smith warned.
But unfortunately, spending money in order to feel good can become addictive.
“Shopping can actually release endorphins in the brain, similar to other activities such as exercise, sex and even eating chocolate,” he said.
And those feel-good purchases you rack up could be hard to pay off. If you indulge in retail therapy to the point that you miss a payment because you cannot afford all your expenses, you may eventually ding your credit score.
Shopping could affect not only your payment history but also your credit utilization ratio. This makes up 30 percent of your FICO credit score, and credit utilization (your current balance in relation to your credit limit) is a major indication of how you use credit. Typically, if your utilization ratio is above 30 percent, it indicates to lenders that your lifestyle relies heavily on credit. Too much retail therapy could lead you to utilizing much or all of your credit line, which could lower your score.
While a regular morning latte or a new pair of shoes might seem harmless, you’ve got to consider their effect on your bottom line.
5. Opening and closing multiple cards
Speaking of feeling good, some cardholders enjoy applying for new credit cards, earning their sign-up bonuses, and then canceling the cards — a practice called credit card churning. Serial acquisition of credit cards can seem like a good idea at first to earn high rewards quickly. However, it can reflect poorly on your credit score if you open and close too many of them.
Consumers sometimes cancel accounts with a positive payment history just to eliminate the temptation to use the card, said Tanya Peterson, former vice president of brand at Freedom Debt Relief, in a previous interview.
But the longer you have a credit card account, the more valuable it is in credit score calculation, she added.
This is mostly because each credit card account counts toward your overall length of credit history, which is 15 percent of your FICO score.
Instead of canceling a card with a positive payment history, Peterson suggests that you “store a card away to avoid using it, but think very carefully before actually closing the account.”
Having multiple credit cards that all have good histories can strengthen your credit score, said Igor Mitic, a former financial advisor at Fortunly, in a previous interview.
On the other hand, opening credit cards could also affect your credit. If you apply for a credit card just for the sake of having it, your credit score could take a temporary dip from that hard inquiry, so be prepared. Adding new credit — 10 percent of your FICO score — to your credit report could boost it a little, but since it could also shorten your average length of credit history, the change in your credit score may be minimal.
“It’s better to have a good record on just a few cards than to stack credit cards and not use them,” Mitic said.
6. Not keeping your receipts
When shopping around town or running errands, you should also keep your receipts to compare the transaction amounts to your credit card statements. That way, you can catch any fraudulent charges that pop up on your statement, since you have the evidence that you didn’t make that purchase.
If you don’t keep your receipts, you can’t compare them with your credit card statements to see if you’ve been charged for something you didn’t buy, said Gladice Gong, personal finance blogger for Earn More Live Freely, in a previous interview.
“If you have your receipts, you can easily file for a chargeback with your bank if there is any dispute,” Gong said.
7. Accepting whatever APR you’re offered
Though carrying a balance is a bad habit, sometimes it’s unavoidable due to certain financial hurdles, such as loss of employment or a medical emergency. In that case, you should consider requesting a lower APR.
In fact, Wade Schlosser, CEO and founder of debt relief website Solvable, tells his clients that if they’re carrying a balance on their credit cards, to call their issuer and negotiate the APRs.
“It’s amazing how much money you can save over time if you just shave a few points off your interest rate,” Schlosser said.
In fact, the average credit card interest rate is higher than ever — it’s 20.63 percent, at the time of writing. If you find that your credit card balance is more difficult to manage than usual, that’s because issuers are likely charging you a higher APR than before. Still, asking for a lower APR will only benefit you, especially if your account is in good standing. Worst case scenario, you pay the APR your issuer originally assigned you.
8. Not reading your credit card statements
Smith knows that with lots of different bills coming in the mail (or via email) every month, reading each one can be mind-numbingly boring, not to mention time-consuming.
“But there are benefits to reading your credit card statements, like catching unauthorized credit card charges or billing errors,” Smith cautioned.
When you see unauthorized transactions or incorrect numbers to a merchant you did shop at, be sure to file a dispute or ask for a chargeback with your credit card company.
Perhaps you received a credit card offer in the mail, with an enticing 0 percent interest for up to 18 months or more. Eighteen months of no interest is rather attractive, so you apply for the card and easily get approved.
However, because you know you have 18 months to pay off a debt, you make only the minimum payment each month and plan to deal with the rest later. But then 18 months fly by and you still haven’t paid off that debt.
If it’s a retail store card, a consumer may get hit with deferred interest they weren’t paying for 18 months, which can double or even triple the payment amount, said Beverly Darnell, a credit and budgeting advisor, in a previous interview.
“A smart consumer will take the debt amount and calculate a monthly payment for a much shorter time to ensure they pay [the debt] off before the shock of 18 months’ of interest hits,” Darnell said.
For example, if the balance is $1,000 and you have a year interest-free, divide that by 12 and make that payment instead of what you see on your statement, she suggested.
10. Not monitoring your credit score and report
Account takeover fraud, which is when someone uses your credit card to charge unauthorized items, is only one type of fraud. Another type, new account fraud, is when a criminal opens a new credit card account under your name without your knowledge or consent. You can usually only detect this kind of fraud when you check your credit report and credit score.
“Monitoring both can help you fix any issues that come up from missed bills or fraudulent activity,” said Deacon Hayes, the president of Well Kept Wallet. The sooner you react to credit report errors or other negative items, the faster you can raise a lowered score.
You can request free credit reports from all three of the national credit bureaus from AnnualCreditReport.com. As for your credit score, many credit card issuers offer free credit scores through your online account or their respective mobile apps.
11. Bouncing balances back and forth among cards
As always, there are many great credit cards available on the market, including some top balance transfer credit cards with offers of 0 percent APRs for 15 or even 21 months.
Balance transfer cards are a great way to consolidate high-interest credit card debt so that you can focus on your payments on one account, and if you have a 0 percent intro APR offer, pay off more of the balance instead of interest charges.
“But if someone is applying for a new card every year and just transferring the balance to it, they aren’t paying off their debt — and they’re likely spending a lot of money in balance transfer fees, too,” Schlosser said.
In addition, continuously having a high balance on a credit card can lower your credit score because it keeps your credit utilization rate high. Rather than jump around balance transfer cards, trying to avoid paying interest by successively taking advantage of balance transfer offers, you should tackle your credit card debt head-on. That would lower your utilization ratio and help raise your credit score.
12. Making a large purchase without a plan to pay it off
Credit cards, especially those that charge a 0 percent APR for a certain time, can be a big help in an emergency situation, such as a sudden doctor’s visit or an unexpected car repair.
But if you make a large purchase, you should have a plan to pay it off, according to Schlosser.
“I always suggest people look at the tax refund they’re expecting and use at least a portion of that to pay down outstanding credit card debt,” Schlosser said.
Schlosser said if a consumer has a 0% intro APR credit card and decides to use it for their holiday shopping or a winter vacation, that’s fine.
“Make the minimum payments for now, and then pay the balance in full when you get your next windfall,” he suggested.
13. Taking out cash advances
One of the most detrimental actions you can take with a credit card is utilize a cash advance. They’re expensive, as they often come with high cash advance fees and compounded interest rates that kick in as soon as you get the money.
Unlike regular purchases, the interest rate doesn’t wait to charge you if you carry over the amount you took out; it starts accruing the moment you take out the cash advance. Banks also don’t offer grace periods on them, so you’re pressured to pay it off immediately — rather than receive 21 days or more to pay it off.
“Don’t take cash advances from one credit card to pay off another,” Gerstman advises. “In fact, cash advances are generally a bad thing under almost all circumstances because they continue the cycle of bad credit habits.”
Instead of taking a cash advance, implement a plan to get out of credit card debt sooner than later, Gerstman said.
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