7 Bad Credit Card Behaviors to Change Right Away

Credit cards, a little piece of plastic, make your spending easy. 

But sometimes, spending without thinking can hurt your credit score and make getting a loan harder. Plus, it can also be the reason for lots of stress.

According to CardRates, Americans own $986 billion in credit card debt, showing a very unhealthy and bad habit. 

But there is a solution!

You can take back control of your finances by changing your habits with your credit cards.

So, today, through this guide, we will talk about the 7 most common bad habits and give specific tips to stop doing them.

If you make these changes, you can improve your credit and feel better about your money.

The Minimum Isn’t Enough: Pay More Than Just the Minimum

We know those minimum payment amounts look so nice and low. Almost tempting, right?

But it’s a trap; we suggest you don’t fall into that!

Sticking to just the minimum will sink you into serious debt. Here’s the deal – those small payments barely dent what you owe. So your balance stays the same while interest keeps piling on. Brutal, we know. This can drag out your debt for years, costing you extra fees.

Do yourself a favor and pay more whenever possible. We get that money’s tight, but even a few extra bucks helps. Shoot to pay off the card with the highest interest rates first. This saves you the most than saving cash or worrying about your emergency fund.

We promise it seems impossible until you start doing it.

Then, when your balances drop faster each month, you’ll feel amazing.

Give it a shot – pay more than those sneaky minimums so you can kill debts faster. Your wallet will thank you big time!

Crushing Debt is Heavy: Lighten Your Load and Pay Down Balances

The weight of credit card debt is a heavy burden for many Americans. According to Experian’s 2023 State of Credit report, the average credit card debt per indebted household is $9,270, which continues to rise. This crushing debt load takes immense financial and emotional tolls.

The Consumer Financial Protection Bureau analyzed how costly credit card interest payments can be over time. For a credit card balance of $5,000 at a 17% APR, making only minimum payments would take over 17 years to pay off and incur $4,729 in interest charges. That means the total cost would balloon to $9,729 – nearly double the original debt!

The key is to get intentional with payment plans to pay down balances faster. Financial expert Dave Ramsey popularises the debt snowball method, where you pay minimums on all debts except the one with the smallest balance. Put as much money as possible towards the smallest debt while continuing minimums on the others. Once the first debt is paid off, roll that payment amount into the next smallest balance, creating a snowball effect.

Bringing down high-interest credit card balances takes focus and budget sacrifices, but perseverance pays off. Every extra dollar makes a difference. See each payment as progress towards shaking off the crushing weight of debt for good.

You can do it!

Knowledge is Power: Review Credit Reports Regularly

They say what you don’t know can’t hurt you, but that doesn’t apply to your credit report! Staying informed on your credit data and activity is critical – a 2021 Consumer Federation of America study found that 34 million Americans have an error on their credit reports that could negatively impact their scores.

It is estimated that around 70% of credit reports contain mistakes. Even an error as minor as an incorrectly reported payment date can suggest delinquent payments and cause your score to plummet. And you won’t even know there’s an issue unless you review the details regularly!

Federal law allows every American to access one free credit report per year from the three major bureaus. Pull your reports annually via annualcreditreport.com and review all account information, loans, credit limits, payment statuses, etc. If errors exist that negatively impact you, submit dispute letters to the bureaus with evidence to correct the mistakes. This protects your score and ensures it accurately reflects your financial habits.

Don’t leave your credit health to chance! If left undiscovered, errors can sabotage financing, loan, and credit card approvals. Make report reviews a routine habit – knowing the details empowers you to improve the data that drives your financial options and success.

Stay vigilant!

High Credit Use Costs More: Maintain Low Utilization

Credit utilization – the ratio between credit card balances and total credit limits – is a critical factor in credit scores. The lower your utilization, the better your score. However, FICO reports that over 40% of consumers have utilization that is approaching or exceeding 30% of their limit. High utilization drags scores down.

According to Experian, maxing out just one credit card can cause credit scores to plunge by up to 45 points instantly. Meanwhile, prime scores see utilization below 10%. The Consumer

Financial Protection Bureau found cardholders with subprime credit scores below 660 had an average utilization of around 50%, versus just over 20% for super prime 850+ scores.

High usage also means higher interest charges. Issuers charge higher rates to riskier borrowers who are more likely to carry balances month-to-month.

Maintaining low utilization below 30%, and ideally, 10%, saves money over time. Leave plenty of breathing room below your credit limits. Slashing balances and minimizing usage protect credit health and save money long-term. Monitor utilization levels and take action before maxing out cards that drain your finances from all angles.

Missed Payments Mean Penalties: Always Make Minimums

Missing credit card payments can result in late fees, penalty APRs, and damage to your credit score. According to Experian, missing one payment can lower your credit score by 110 points. Meanwhile, credit card issuers typically charge around $30-40 late fees for the first missed payment.

If a payment is 60+ days late, the issuer may raise your interest rate to a costly penalty APR, which averages over 28%, according to CreditCards.com. This causes balances to accumulate even faster.

To avoid these penalties, paying at least the minimum amount due by the payment due date each month is imperative. Set up automatic payments or calendar reminders so you never miss a payment deadline. Paying on time protects your credit score and avoids unnecessary fees.

If money is tight, contact your issuers to see if they can waive late fees or offer hardship programs. Consider balance transfer cards to pay off high APR debt faster. With diligence, you can build a positive payment history over time and earn back a good credit score.

Budgeting Brings Freedom: Plan Your Spending 

Creating and sticking to a budget is key to avoiding bad credit card habits that can damage your finances. According to a 2019 survey, only 35% of Americans use a budget to manage their monthly spending. However, budgeting can provide the visibility and control needed to make positive changes.

When creating a budget, include all monthly expenses, including bills, housing costs, transportation, food, entertainment, and discretionary purchases. Track your spending to get accurate totals in each category. Once you see where your money is going, look for areas to cut back, especially on wants vs needs. Setting limits for dining out, entertainment, shopping, etc., can help control credit card overspending.

Automating payments and savings is also an effective budgeting strategy. Set up bills to auto-pay from a bank account each month and auto-transfer a portion of your paycheck to savings first before you can spend it. Start by saving 10-15% of your income as an emergency fund.

Cash Advances Carry Big Fees: Just Say No

Taking out a cash advance on a credit card can be a costly way to get quick cash. According to the CFPB, the average credit card cash advance fee is around 5% of the amount advanced, and cash advance APRs are typically over 20% – much higher than regular purchase APRs.

This means if you take out a $500 cash advance with a 5% fee, you’ll immediately owe $525. If your cash advance APR is 25%, you’ll owe over $130 in interest if it takes you one year to pay off the advance. That’s over $650 for borrowing $500!

Understanding these costs and avoiding using credit card cash advances for quick funds is essential. Find lower-cost alternatives like a personal loan from your bank or credit union if you need fast money. An extra shift at work or selling unused items could also help raise funds more affordably.

If you have existing cash advance balances, pay them off as a top priority. The high interest rates mean these balances balloon quickly. Consider consolidating balances to a lower APR card or personal loan if that helps you pay off cash advance debt faster.

Applying Too Many Dings Your Score: Only Open Needed Accounts

Credit bureaus record these as “hard inquiries” on your credit report when you apply for new credit cards and loans. According to FICO, having too many hard inquiries in a short period can negatively impact your credit score. This is because multiple inquiries can indicate a higher risk of taking on unmanageable debt.

Experts recommend limiting hard credit inquiries to no more than 3-4 within 12 months to avoid potential damage to your score. One inquiry drops your score by less than 5 points on average, but each additional inquiry has an increasingly greater impact.

Before applying for any new credit card or loan, ask yourself if you need that account and will use it responsibly. Avoid opening retail credit cards to get one-time discounts, as the inquiries and additional available credit can hurt your utilization ratio. Instead, stick with 1-2 primary credit cards with good rewards programs and only open new accounts selectively as needed over time.

Conclusion!

Changing unhealthy credit card habits requires diligence but pays dividends through improved finances and peace of mind. By paying balances faster, monitoring credit reports, controlling utilization, budgeting correctly, avoiding cash advances, and applying judiciously for new credit, you can take control and build an optimal credit profile over time.

So, change your habits now and lead a promising and healthy financial life.

Similar Stories