Credit cards can rack up frequent flyer miles, accumulate points that bring discounts and make it easy to pay for a night out before pay day, but they’re definitely not just for fun. They’re serious business, especially when spending gets out of hand. To keep you on the good side of credit, avoid the following bad habits with these simple steps:
1. Making late payments
Your payment history accounts for 35% of your credit score, which means paying on time is necessary to receive lower interest rates in the future. Missing payment due dates could equate to late fees and the possibility of your interest rate being raised—making it more difficult to make payments down the road. Designate a specific day to pay your credit card balances each month or sign up for online bill pay and create automatic payments.
2. Only making the minimum payment
Paying the minimum on your balance each month won’t go very far. Thanks to the interest that continuously accrues, it’s tough to make a dent in your overall debt when you make only small payments. Try to cover as much as possible up front and continue making payments between payment due dates if possible. If you charge enough on your card that you’re unable to pay off the entire balance, avoid using your card any more until you’ve whittled down the balance.
3. Having too many cards
Keeping track of several different credit card payments each month gets confusing and can ultimately lead to late payments. What’s more, it’s easy to lose sight of just how much you’re spending each month when it’s spread over several cards. Try consolidating to one or two cards to better track your spending.
4. Maxing out cards
30% of your credit score depends on your debt-to-available-credit ratio. If you consistently reach the maximum borrowing amount on your card, it reflects poorly on your score. It’s best to pay down your balance regularly instead of letting it accumulate. It’s even better to pay it down to zero as often as you can.
5. Not creating an emergency fund
Sometimes called a “rainy day fund,” an emergency fund is just that: money you save in case of unforeseen expenses—such as health issues, home repairs or sudden unemployment. Without an emergency fund, these expenses could potentially force you to take on large amounts of credit card debt. Experts suggest maintaining three to six months’ worth of your income in a separate savings account. Even if you haven’t started a fund, setting aside money each month or automatically from every paycheck will help create a cushion for unexpected expenses—a much safer strategy than relying only on credit cards.