8 bad credit card habits you need to break

Credit cards can be beneficial tools when used responsibly, but they can wreak havoc on your credit score and financial health when used the wrong way. Unfortunately, it’s easy to get on a slippery slope with credit cards, but it’s not too late to turn things around by making smart choices and avoiding bad habits.

Here are eight bad credit card habits you should avoid if you want to get the most out of your credit cards.

1. Late payments

Late payment can have serious consequences. For starters, you could incur late fees of up to $35 and possible interest rate hikes. If your payment is more than 30 days overdue, the major credit bureaus — Equifax, Experian, and TransUnion — could add a late payment mark to your credit report that could stay there for up to seven years. This can affect your ability to get or maintain good credit.

If you often forget your due date, consider creating a reminder on your phone or setting up automatic payments. If it’s a lack of funds that’s preventing you from making timely payments, you can request a new due date from your card issuer that better matches your payroll schedule.

2. Only pay the minimum due

Paying only the minimum due on your credit card payment is a bit like kicking the box. Technically, you’re making progress, but you’re not really accomplishing much in the long run.

Likewise, if you’re only paying your minimum balance, you’re not making progress toward paying off your balance, and you’re likely paying more interest than you want. Additionally, paying only the minimum could negatively impact your credit by increasing your credit usage. Credit utilization is the percentage of your total credit that you use and represents 30% of your FICO credit score. Experts generally recommend keeping your credit utilization ratio between 10% and 30% to prevent it from impacting your credit score.

Pay more than the minimum whenever you can. Best practice is to pay your bill in full each month so you don’t have a balance. Putting as much as you can towards your monthly payment will reduce the balance you carry over to the next month and result in lower interest charges. Even if it’s just a small amount more, you’ll be surprised how quickly this little extra can add up.

Use Bankrate’s Credit Card Repayment Calculator to play with the numbers and see how quickly you can pay off your credit card.

3. Make cash advances

Getting a cash advance is quick and easy, but chances are it won’t be worth it. Many card issuers charge a higher interest rate for cash advances than for regular purchases. And, unlike the grace period offered by issuers for purchases (as long as you don’t carry a balance), you won’t get a grace period to repay a cash advance. Interest on cash advances begins to accrue immediately.

And if all that wasn’t enough, you’ll likely have to pay a one-time cash advance fee, usually around 3% of the cash amount. This means that if you obtain a cash advance of $400, you will be subject to a $12 fee for the lien.

4. Using the wrong credit card

One of the reasons credit cards appeal to consumers is the rewards and benefits they offer, such as cash back on purchases and airline miles. While taking advantage of credit card rewards is a popular and potentially lucrative strategy, failure to match cards with your spending habits or use rewards from your cards means you could actually be leaving money behind. money on the table.

For example, you probably don’t want to use a rotating bonus category card like Discover it® cash back as your everyday grocery card. That’s because you’d only earn the maximum 5% cash back for groceries for three months of the year (usually January through March, depending on Discover’s cash back schedule). The rest of the year, you’ll only earn 1% cash back. For everyday groceries, you’re better off using the Blue Cash Preferred® card from American Express, which earns you an unmatched 6% cash back on groceries up to $6,000 per year, then a 1% cashback thereafter.

Here’s another example: if you don’t travel or dine out regularly, it probably doesn’t make sense to shell out an annual fee of $550 for the Chase Sapphire Reserve, or $250 for the American Express® Card. Gold, as both cards’ rewards lean heavily towards travel and dining, two of the most popular bonus categories for rewards cards. You’d probably be better off with a general-purpose card with a flat rate of cash back, like the Wells Fargo Active Cash℠ Card, which offers unlimited 2% cash rewards on purchases.

Rewards cards are a fantastic way to earn rewards by charging for purchases you would have made anyway. Be careful, however, not to abuse the card just for points or miles and adopt good habits with your rewards card.

5. Closing old credit card accounts

Many people believe that closing an unused credit card will improve their credit. However, the length of your credit history makes up 15% of your credit score, and people with high credit scores tend to have long credit histories.

Closing an old account can have a negative impact by lowering the average age of your accounts. Let’s say you’ve had one credit card for six years and another for two years. The average age of your credit history would be four years. But if you closed the old card, you would only be left with one two-year account, which would bring the age of your accounts back to two years.

Closing a credit card or loan account could impact your credit score, but it might not have an immediate effect. It all depends on the scoring model, VantageScore or FICO. VantageScore may not include closed accounts when it calculates your credit score, so closing an account could reduce the average age of your credit accounts and negatively affect your score. FICO, on the other hand, includes both open and closed credit accounts in its score calculations. Closing a credit account may not have an immediate effect on the length of your credit history since a closed account will remain on your report for seven to 10 years (depending on its position when closed).

Think twice before closing an old credit card, especially the oldest one. Sure, it makes sense to cancel your credit card if it has high annual fees that aren’t clawed back by card rewards, but it’s worth investigating other options, like a product switch. or downgrade before completely closing the account.

6. Do not refund the balance during a promotional offer 0% APR

A 0% APR credit card for an introductory period gives you immediate access to funds and the ability to use it without interest, as long as you pay off your balance before the introductory period expires. Unfortunately, this is where it goes wrong for a lot of people.

If you don’t pay off the balance by the end of the promotional period, often up to 18 months on the best cards and sometimes longer, the card’s regular interest rate – the cards current average APR is north of 16% – kicks in This new rate will apply to new purchases and any outstanding balances remaining after the introductory period.

A smart plan for paying off intro APR card balances is to calculate a monthly payment that results in the debt being paid off in full before the promotional period expires. Let’s say you have $1,500 of debt on your card and an introductory interest rate of 0% for 15 months. If you make sure you pay at least $100 per month for the duration of the introductory offer, you’ll pay off your balance before you accrue interest.

7. Perpetual Debt Transfer to New Balance Transfer Cards

Balance transfer credit cards with a promotional 0% APR are a great way to pay off high-interest credit card debt. And, while we don’t always recommend transferring a balance multiple times, it can make sense if you’re following a disciplined debt reduction plan and you know you won’t be debt-free until the first period is over. introductory period APR. In this case, a second balance transfer would give you the option to continue paying off your debt interest-free, saving you a lot of money.

On the other hand, if you frequently open new credit cards and only make the minimum payment, you are not pay off your debt. Plus, you’re likely racking up a lot of balance transfer fees along the way. It’s a mistake to keep shifting debt from one credit card to another if you’re not making meaningful progress in paying down your debt.

Rather than risk a potentially endless cycle of credit card payments, you might want to consider getting a personal loan instead. Credit requirements are often more lenient with personal loans than with credit cards, and interest rates are usually much lower. Sure, you’ll have to pay interest on an installment loan, but at least your installment loan will have a set end date, so you’ll know exactly when you’re out of debt.

If you have a new balance transfer card or are planning to get one, Bankrate Balance Transfer Calculator can help you determine how long it will take to pay off your debt.

8. Buy things you can’t afford

It’s far too easy to shop around without making a plan to pay it off before the end of a billing cycle, and precisely how much debt you’ll get into. But, to avoid going into unnecessary debt for shopping, create a budget for yourself so you know what you can and can’t afford. Before deciding to make a major purchase, assess whether you can afford it or not. If the answer is no, you should wait until your finances are in order.

Remember: you should always pay your bills before you pay yourself.

The bottom line

There are many benefits to using credit cards wisely and being aware of the pitfalls above will help you make wise choices when managing your credit cards. The occasional mistake, like withdrawing your gas card at the grocery store or only making a one-month minimum payment, isn’t going to completely derail your financial life. But it’s important to avoid getting stuck making the same credit card mistakes over and over again.

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