Credit cards are a fantastic tool for earning rewards and building and maintaining good credit. But if you don’t use your card responsibly, it could cost you in interest and fees, while also damaging your credit history. Break these five bad credit card habits to save money, reduce stress and boost your FICO score.
1. Carrying a balance
When you carry credit card debt from one month to the next, you’ll owe interest on the average daily balance. So if you have an average balance of $2,000 and an annual interest rate of 20%, you’ll owe about $33 in interest for the month.
Carrying a balance can also hurt your credit score via high credit utilization. One of the largest factors of your FICO score is credit utilization, or your debt in relation to your available credit. Ideally, your utilization should never exceed 30%, as balances are often reported mid-billing cycle.
To avoid interest and high credit utilization, resist charging more to your credit card than you can pay off each month. If you already have credit card debt, prioritize paying it off. The Nerds have some suggested ways to increase your income and reduce your expenses to free up more cash to pay off your debt.
2. Paying late
Missed payments can result in late fees and tarnished credit. In fact, a late payment can remain on your credit report for seven years. A late payment might not be reported to the credit bureaus right away, but you’ll probably incur a late fee — which is often around $35 — regardless of how late the payment is.
To avoid a late payment fee and a ding on your credit, stay on top of your payment due dates. You can schedule recurring payments, which will result in an automatic payment from your checking account on your due date — or a date of your choice — each month. This is a great hands-off method, and it’s ideal if you know the funds will be available in your checking account.
If your income varies, or you don’t want to set up automatic payments, you may opt for manual payments. Set up reminder emails or texts, or write your due dates on a calendar and always pay your bill on time. You only need to make the minimum payment to keep your account in good standing, but we recommend you pay your entire balance each month.
3. Using too much credit
High credit utilization — using more than 30% of your available credit — can hurt your credit score. Because balances may be reported at any time in a billing period, you should aim to keep your utilization low at all times.
If you regularly charge more than 30% of your credit limit each month, you have a couple of options to keep utilization in check. You can make multiple monthly payments to keep your balance low, or you can request a credit limit increase from your card issuer. Be aware that the latter will likely trigger a hard inquiry on your credit report, slightly reducing your credit score.
4. Applying for every new card
As cards with new and exciting rewards or features hit the market, it may be tempting to apply for all of them. But try to refrain from applying for more than one credit card in a six-month period to avoid a significant hit to your credit.
It’s also a good idea to avoid getting too many credit cards if you know you won’t be able to keep track of them all. Juggling multiple cards means remembering multiple account logins, balances, interest rates and rewards. Simplify by sticking to just a few cards.
As far as new card temptation, if you aren’t in the market for a new card, let the newness wear off before making the decision to apply. If you find that in six months you still want the card, go forth and charge responsibly.
5. Playing the balance transfer game
Balance transfers aren’t inherently bad; they can help you get out of debt for less interest than you would otherwise have to pay. However, if you find that you’re transferring the same balance again and again, you may be playing the “balance transfer game.”
This game involves moving the same balance from one card to the next without making any real progress paying it down. Even if you expertly navigate around owing interest when the 0% APR periods expire, you’ll likely end up paying a 3% to 4% transfer fee each time. Avoid playing the balance transfer game. You won’t win.
If you have a debt that will take more than six months to pay off, you may want to consider transferring your balance for interest relief. Here’s what to do: Check out our top balance transfer cards and pick the one that best meets your needs. Create a plan to pay off the balance in full before the 0% APR expires. If you can’t pay it off in time, you may want to do a second balance transfer, but don’t use that as a reason to keep the debt around longer than you need to.
The bottom line
To build good credit and save money, avoid carrying credit card balances, paying late, using too much credit, applying for every new card that hits the market, and playing the balance transfer game. These bad credit card habits don’t belong in your life. Swear them off for good and reap the rewards of responsible credit card use.
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