Home > Credit Cards > 7 Bad Credit Card Habits You Can’t Afford to Keep

Comments 0 Comments

Credit cards can be great financial tools if you use them responsibly. You can earn credit card rewards on your everyday spending and build your credit with a positive payment history

But if you use credit unwisely, you can dig yourself into a hole of debt and damage your credit score along the way. Here are the top seven credit card mistakes you should avoid at all costs.

1. Carrying a Balance

You might have heard that you need to carry a balance on your credit cards for a balance to show up on your credit report every month.

“I have no idea where that myth originated, but it has been circulated widely in the last year or two,” Rod Griffin, director of public education at Experian, told me. “It is absolutely not true.”

Credit card companies typically report your balance to the credit bureaus once a month, usually at the end of each billing cycle. As a result, the balance that the card issuer reports is most likely your statement balance. That means the balance on your due date when you pay it off is irrelevant.

You may have also heard that you need to carry a balance in order to help your credit. Griffin debunks that theory as well.

“Ideally, you should pay your balances in full each month,” says Griffin. “The lower your balances are, the better it is for your credit scores. The only thing leaving a balance will do is cause you to pay interest on that balance. It will cost you money, but it won’t help your credit scores.”

What You Can Do: If you are able, pay your balance in full each month to avoid interest and get the benefits of a positive payment history.

2. Using Credit Cards to Pay Off Other Debt

This one’s a little tricky. In the right circumstances, using a balance transfer credit card with a 0% APR promotional period can be a great way to eliminate your high-interest debt from other cards faster.

But some lenders allow you to use a balance transfer to pay off other debts, including student loans, auto loans, and even mortgage loans—which could open you up to a potential disaster.

Credit cards typically carry higher interest rates than the average loan. Even if you’re confident you’ll pay off the debt within the 0% APR promotional period, something unexpected can come up and leave you paying more interest in the long run.

What You Can Do: Consider using balance transfers to pay off only high-interest credit card debt. Even then, pay off the balance as quickly as possible to avoid the interest trap again.

3. Running Your Balance Too High

Even if you pay off your credit card balance on time every month, your credit could suffer. That’s because your credit utilization is a big factor in your credit score.

Credit utilization is calculated by dividing your balance by the card’s credit limit. So, a card with a $3,000 balance and a $6,000 limit has a credit utilization of 50%.

Your credit score also takes the average utilization of all your cards into consideration. So, if you have one card with a low utilization and another with a high utilization, your aggregate utilization could still be high, which can hurt your credit.

“Your credit report typically reflects the balance that shows on your credit card billing statement,” says Griffin. “Even if you pay it in full [by the due date], that could potentially represent high utilization for that month.”

What You Can Do: A good guideline is to keep your credit utilization below 30%. Set a balance alert to let you know when you’re getting close to that limit. Alternatively, you can make multiple payments on the card throughout the month to keep the balance low.

If you have some months with a high balance, however, don’t worry. “[It] generally doesn’t create a lasting effect on your credit scores if it only happens occasionally,” says Griffin. “Because it is temporary for most people . . . the scores will likely rebound quickly if there is a drop.”

4. Applying for the Wrong Card

Credit card companies can be picky about whose applications they approve. People with bad credit are at risk of defaulting on their credit card debt. As a result, most rewards credit cards are targeted to people with good or excellent credit.

If you apply for a card without knowing where your credit stands or what the card issuer requires, you might get denied.

Although a denial doesn’t hurt your credit, the credit inquiry that happens when you apply can knock a few points off your score. And if you keep applying and getting denied, those inquiries will compound and hurt your score even more.

What You Can Do: Always check your credit score before applying for a credit card. If your score is below 650, you might be better off applying for a secured credit card to help build your credit.

5. Neglecting to Set a Budget

Overspending is the biggest danger credit cards present. Unlike a debit card, a credit card doesn’t stop or penalize you once your checking account balance reaches zero.

If you use your credit card without a budget, you’re more likely to go into debt, which can cost you in interest.

Budgeting isn’t always fun or easy, but it’s the key to curbing your spending and living within your means. Take the time to review your average monthly expenses and work out a budget that takes your spending into account.

What You Can Do: Find out how much you take home each month and list out your expenses. Then, set spending goals for each category to keep you from spending more than you earn.

If you’ve already overspent and need to pay down some debt, consider a balance transfer credit card or personal loan to get a lower interest rate.

6. Ignoring Your Online Account

“You can use your billing statement as a budgeting tool,” says Griffin. “It allows you to track your spending throughout the month.”

If you’re not checking your online account throughout the month, it’s hard to know how much you’re spending and where your money is going.

What’s more, your online account is usually the first place you’ll notice fraudulent activity. If you’re not checking it often, you could be giving an identity thief more time to use your credit card information.

What You Can Do: Check your online accounts throughout the month to make sure you know where your money is going. Keep an eye out for any charges you don’t remember making. If they were made by a fraudster, you’ll be able to stop the fraud before it gets worse.

7. Paying an Unnecessary Annual Fee

Annual fees aren’t inherently bad, but they’re not for everyone. On rewards credit cards, it’s important to know whether you’re earning enough rewards to make up for the fee. If not, you’re likely better off with a card with no annual fee.

What You Can Do: If you have a credit card with an annual fee, find out how much you’ve earned in rewards over the past year. Then, subtract the annual fee from that amount. If it’s low or negative, consider switching to a card without an annual fee.

Use Your Credit Card Responsibly

When you use a credit card responsibly, you can take advantage of perks and rewards while building credit without paying much in interest. But if you’re not careful, you could suffer the consequences of bad credit card habits for months or even years.

As you consider how you use credit, keep in mind how your actions might affect you both in the short term and down the road. For instance, your credit report displays the past 7–10 years of your financial history. If you made a big money mistake even a few years ago, it’ll take a while for that to go away—and meanwhile, potential creditors and potential landlords, among others, have access to that information. Keep an eye on your credit report for free at Credit.com.

 

Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.



Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team