Credit cards are a useful financial tool, but when they aren’t used responsibly, they can be detrimental to your overall financial well-being. It’s easy to fall into bad habits when using credit cards, from overspending to opening too many accounts, and it doesn’t take long for those habits to hurt your credit score and cost you more money.
Avoiding these habits, to begin with, can protect your finances, but if you’ve already slipped into these dangerous behaviors, you need to work on breaking them for your long-term financial health.
Table of Contents
1. Making Minimum Payments
When you make purchases on a credit card, you should do so with the intention of paying the entire balance when the bill comes due. Regularly making only the minimum payments on your credit cards is better than not paying them at all, but if all you ever pay is the minimum amount due, you’re damaging your finances.
Unless you pay more than the minimum every month, you won’t make much progress toward reducing your balance. Making only minimum payments means you’re paying more in finance charges, not to mention reducing the amount of available credit.
Ultimately, this reduces your credit score, since your account shows higher utilization and high balances, and increases your debt-to-income ratio, which can affect your ability to qualify for additional credit. As a rule of thumb, then, pay the entire balance in full every month, or pay what you can to eliminate the balance within 36 months, which will be detailed on your monthly statement.
2. Paying Late or Missing Payments
Making your payments on time, every time is important to maintaining good credit — and your access to credit cards. Missing a payment, or paying late, usually means late fees, which drive up your balance.
Depending on the creditor policies, late or missed payments can also mean an immediate reduction of your credit limit. Making a habit of missing payment deadlines will likely lead to your account being closed as well, but at the very least, your spotty payment history will appear on your credit report and affect your credit score.
If you struggle to make payments on time, set up automatic or recurring payments to avoid missed deadlines.
3. Carrying a Balance
You may have heard that carrying a balance on your credit cards is a good way to build your credit score, but the truth is that doing so makes no measurable positive difference to your score. In fact, depending on how high your balances are, it might even hurt your score by showing greater credit utilization.
Carrying a balance on your cards also reduces how much available credit you have for an emergency. It’s always a better idea to pay your balance in full or have a plan to get it paid off quickly.
4. Running Your Balance Too High
One factor that determines your credit score is your credit utilization or the ratio of your balances to available credit. The more credit you have available to use, the lower the ratio, and the higher your score.
Letting your credit card balances get too high without paying them off reduces the amount of available credit and in turn, your credit score. High balances also affect your spending ability, increasing the likelihood that your purchases will be declined or put you over your spending limit.
Some credit card companies charge over-limit fees, which only drive your balance higher and make it harder to pay the card. Before making any purchases on your card, check your balance, and avoid getting too close to your spending limit.
5. Not Reading Your Credit Card Statements
Your credit card statements are more than just a bill. They actually contain important information, and you should review them every month to make sure you aren’t missing details that could cost you money. At a minimum, you should be checking for unauthorized transactions or billing errors, but take a moment to double check that there haven’t been changes to your credit limit, interest rate, and other details.
By law, your credit card bill must also contain information about how long it will take to pay your balance when you pay only the minimum, as well as suggestions on how to reduce the balance faster. Once you see that it will take 20 years or longer to pay off your balance with minimum payments, it just might spur you to make a bigger payment this month.
6. Opening and Closing Multiple Credit Cards
Every time you apply for a new credit card, you might reduce your credit score by a few points. Using that new card further affects your credit report. However, closing old accounts can be just as detrimental, since the age of your credit accounts also influences your credit score.
Lenders determine your creditworthiness by looking at how you’ve used the credit available to you over time, and constantly opening and closing accounts doesn’t necessarily show a pattern of responsibility.
Ultimately, having a few credit cards and using them responsibly is better than opening many accounts and not using them at all, or closing old accounts that are actually helping your score.
7. Paying Unnecessary Fees
Many credit cards charge fees, and if you aren’t careful, you could end up spending hundreds of dollars more than necessary. Before opening any account, check the fee schedule, and whenever possible, avoid cards that charge an annual fee.
You can avoid unnecessary credit card fees by using your card responsibly; for example, over-limit and late fees. If your card offers cash advances or sends checks that you can write on the account, read the fine print. Often, these privileges come with higher interest rates and fees, so they shouldn’t be used as a source of cash.
If you are regularly getting cash from your cards, take a hard look at your spending habits so you can make changes and stop borrowing from your credit card.
8. Using Credit Cards to Pay Off Debt
Transferring one credit card balance to another card with a lower interest rate can save you money — if you pay that balance in full. However, constantly transferring balances between cards, or using your credit cards to pay down other debt, is not a smart financial decision.
For starters, transferring a balance between cards isn’t actually paying your debt, and in some cases, balance transfer fees will negate some or all savings on interest. You are still responsible for paying the balance, and opening a new card will affect your credit score.
If you are opening a new low-interest card to consolidate your debt from other cards, and have a plan to pay the balance in full in a few months, it can be a useful strategy, but simply opening new cards to flip debt over every few months is only going to hurt you in the long term.
9. Ignoring Your Online Account
Using your credit card issuer’s online tools, including websites and mobile apps, is key to staying on top of your accounts and using them responsibly. With just a few taps or clicks, you can check your credit activity, see your available balance, make payments, and more.
Checking your balance before you make a purchase, for example, lets you confirm you have enough credit and won’t go over the card’s limit or get declined on the purchase. Staying on top of your accounts also ensures you can catch problems right away, without waiting for your statement to arrive.
10. Not Monitoring Your Credit Score
Your credit score can change regularly, going up or down by several points within the span of just a few weeks. It’s your responsibility to keep track of any changes to your report and score and dispute any incorrect information. The faster you correct errors, the faster you can raise your score, which allows you to build or repair your credit more quickly.
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