The worst credit card habits you need to break right now

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

But if you use credit recklessly, you can get into debt and damage your credit score along the way. Here are the top seven credit card mistakes you should avoid at all costs.

1. Have a balance

You may have heard that you must have a balance on your credit cards for a balance to show on your credit report each month.

“I have no idea where this myth came from, but it has been widely circulated over the past two years,” Rod Griffin, director of public education at Experian, told me. “This 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. Therefore, the balance reported by the card issuer is most likely your statement balance. This means that the balance on the due date when you pay it off is irrelevant.

You may have also heard that you need to have a balance to improve your credit. Griffin also refutes this theory.

“Ideally, you should pay off your balances in full each month,” Griffin explains. “The lower your balances, the better your credit score. The only thing that will leave a balance will be charging you interest on that balance. It will cost you money, but it will not improve your credit score.

What you can do: If you are able, pay off your balance in full each month to avoid interest and reap the benefits of a positive payment history.

2. Using credit cards to pay off other debt

This one is a bit tricky. Under the right circumstances, using a balance transfer credit card with a 0% APR promotional period can be a great way to get rid of your high interest debt from other cards faster.

But some lenders allow you to use a balance transfer to pay off other debt, including student loans, auto loans, and even mortgages, which could put you in potential disaster.

Credit cards generally carry higher interest rates than average loans. Even if you are confident that you will pay off the debt within the promotional 0% APR period, something unexpected can happen that causes you to pay more interest in the long run.

What you can do: Consider using balance transfers to only pay off high interest credit card debt. Even so, 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 each month, your credit could suffer. This is because your credit usage is a big factor in your credit score.

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

Your credit score also takes into account the average usage of all your cards. So, if you have one card with low usage and one with high usage, your overall usage may still be high, which can hurt your credit.

Don’t miss: How a born spender paid off $ 24,000 in debt in 15 months

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

What you can do: A good policy is to keep your credit usage below 30%. Set a balance alert to let you know when you are approaching that limit. Alternatively, you can make multiple payments to the card throughout the month to keep the balance low.

If you have a few months with a high balance, however, don’t worry. “[It] usually doesn’t create a lasting effect on your credit scores if it only happens occasionally, ”says Griffin. “Because it’s temporary for most people… scores will probably bounce back quickly if there is a drop. “

4. Apply for the wrong card

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

If you apply for a card without knowing your credit status or what the card issuer requires, you could be refused.

You might like: How do I cancel 10 credit cards without damaging my credit score?

While a denial doesn’t hurt your credit, the credit check that occurs when you apply can drop your score a few points. And if you keep applying and being turned down, those inquiries will make your score worse and worse.

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 budget

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

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

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

What you can do: Find out how much you bring home each month and list your expenses. Then set spending goals for each category to prevent yourself from spending more than you earn.

If you’ve already spent too much money and need to pay off some of your debt, consider a balance transfer credit card or a personal loan to get a lower interest rate.

6. Ignore 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 don’t check your account online throughout the month, it’s hard to know how much you’re spending and where your money is going.

Read also : Americans now have the highest credit card debt in U.S. history

Plus, your online account is usually the first place you’ll notice fraudulent activity. If you don’t check it often, you could be giving an identity thief more time to use your credit card information.

What you can do: Check your accounts online throughout the month to make sure you know where your money is going. Keep an eye out for loads that you can’t remember. If they were committed by a scammer, you can stop the fraud before it gets worse.

7. Pay unnecessary annual fees

Annual fees aren’t inherently bad, but they’re not for everyone. On rewards credit cards, it is important to know if you are earning enough rewards to offset the charges. Otherwise, you’re probably 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 with no annual fee.

Use your credit card responsibly

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

When thinking about how you use credit, keep in mind how your actions might affect you in the short term and in the long term. For example, your credit report shows the last 7-10 years of your financial history. If you made a big money mistake a few years ago, it will take a while for it to go away – and during that time, potential creditors and potential owners alike, among others, have access to this information.

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About Cecil Cobb

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