Credit cards can be great financial tools. Using them responsibly can help you purchase the items you want, earn rewards and build your credit. Problems arise, however, when you get into some bad habits with your credit cards.
Here are five bad credit card habits that you should consider taking steps to break right away.
1. Mindless Charging
Sure, putting all your expenses on your credit card is a great way to rack up rewards points quickly. There’s nothing wrong with charging everything, as long as you’re doing so responsibly. This means you know you’re only charging what you can truly afford, you’re mindful of your credit utilization ratio and you make your payments on time. The problems come along when you’re mindlessly charging, and not paying attention to how much debt you’re accumulating throughout the month.
How to Break This Habit: It is easy to fall into credit card debt when the card is so easy to use, especially if you’re chasing after rewards. But to break this habit, it’s important to create a budget and stick with it. This way, you have a better idea of the funds you’ll have to use when that statement arrives — ideally helping you pay it off in full. So, that means if you’ve hit your limit for dining out, it’s time to eat at home.
2. Only Paying the Minimum
Most of us know that we should pay more than the minimum on our cards, as this helps us avoid racking up major interest fees on top of what we spend. But there are times when several big expenses all come at you at once and you just can’t afford to pay the card off in full.
How to Break This Habit: Even if you can’t pay your card off in full for a few months, set a goal for when you’ll get back on track and work toward it. (To help you figure out how long this may take, consider using this credit card payoff calculator tool.) Beyond that, the biggest priority is to pay your statement on time, and at least pay the minimum requirement. It may also be a good idea to try avoiding adding new charges to the card while trying to pay it off.
3. Forgetting a Payment
When you don’t pay your statement in full, you end up paying interest fees on what you still owe. But that’s not what we’re talking about here. If you miss a payment, or pay late, you’ll be hit with a late fee. Say your card issuer charges a $35 late fee and you make three late payments in a year, you’re paying more than $100 just in fees for not being on time, not to mention any interest charges you accrue. (Plus, missed payments can do big damage to your credit — more on this in a minute.)
How to Break This Habit: If you have a problem remembering when your statement is due, set up a reminder on your phone or consider setting up an automatic payment. However, if the problem is because you have a lack of funds, talk with your issuer and see if you can change the date the balance is due to one that is more in line with your pay schedule.
4. Ignoring Your Rewards
If you have some type of rewards credit card, whether for travel, cash back or something else, you don’t want to let those rewards go to waste. This is especially true if your card comes with an annual fee. Depending on the card, you may lose your points if they aren’t used or the account is inactive within a set period of time, so it’s a good idea to read the fine print to know the rules that come with your card. If not, you could be missing out on big rewards.
How to Break This Habit: As we just mentioned, make sure you’re familiar with the restrictions that come with your card and then follow through on using your points. Maybe you could use your cash back around Christmas to help offset holiday expenses, or your travel perks to help you offset the cost of your vacation.
5. Not Knowing How Your Card Usage Impacts Your Credit
You may feel you’re using your credit card(s) responsibly. After all, you pay your statement on time every month and usually do so in full. But if you’ve never reviewed your credit profile, or do so infrequently, you may be unaware of some problems that are damaging your scores.
How to Break This Habit: Make it a point to review your credit reports at least once a year. You can get free copies of your reports from the three major credit bureaus — TransUnion, Equifax and Experian — once a year by visiting AnnualCreditReport.com. Look for any mistakes that could be bringing down your scores and file disputes. (This guide can help you learn how to do that.) You can also see a snapshot of your credit reports on Credit.com. In addition to two free credit scores, which are updated every 14 days, you’ll also be given an assessment of steps you can take to help you improve your scores, or even how to stay on the right path.