Adopting bad credit habits can plunge you into a cycle of constant stress and financial problems, but it's never too late to correct course and whip your credit back into shape. Consider adopting these five habits to better manage your credit card debt. Even if you can't do them all immediately, starting with just one can and adding others gradually can help improve your financial wellbeing.
Habit #1: Statement Monitoring
Highly successful credit cardholders get in the habit of monitoring their credit card statements. Instead of just paying what they see, they take the time to go through the statement and check that everything is correct. There could be errors or fraudulent charges, and it's crucial that you catch them. If you find any errors, report them to the credit card issuer as soon as possible so that you're not held liable. (To best protect your interests, submit your dispute in writing within 60 days of the date of the bill.) You should never pay for things you didn't purchase.
If you struggle with overspending, we frequently recommend that after you complete this process you take one minute to note both the purchase you regret the most (or enjoy the least) and the purchase that brought you the most joy. Noting these will help you to think more consciously about the purchase when you’re making the decision about whether or not to spend the money.
Habit #2: Pay in Full and on Time
Never want to pay interest on your purchase? Pay your monthly statement on time and in full every month (no exceptions). Instead of just paying the minimum balance, paying your bill in full can reduce headaches, prevent late-payment penalties, and completely sidestep hefty interest charges. Britta and Ken frequently recommend that clients set up their credit cards to be paid in full automatically every month.
A great perk to paying in full and on time is strengthening your credit history. Paying more than 30 days late can bring down your credit score and leave a blemish on your credit report for up to seven years.1 Avoid this costly situation by setting up autopay or registering with your issuer for email alerts.
Habit #3: Track Expenses
You don’t want to be shocked when you open your credit statement, so be sure to keep track of your credit expenses. Try a money management app like Mint, Quicken, and You Need a Budget2 that can help you keep track easily. Check your expenses routinely to make sure you are within your intended spending limit so you can and avoid anxiety once your statement arrives.
Habit #4: Shop Around for Offers and Rewards
Successful credit cardholders are on the lookout for a better deal, comparing any new offers to the card the already have. Analyze the advantages and disadvantages to determine which card is best for you. Shop around for features like fees, rewards, credit limit, grace period, interest rates, etc.
Some observers suggest that you don't just settle on a card that gives 1% cash back on everything. Instead, find a card that matches your spending habits. (If you travel frequently, get a card that offers travel rewards. If you drive a lot, get a card that offers fuel rewards.) If you take the time to review your spending habits and do some research, you can save hundreds of dollars over the course of a year.
With all this said, remember that looking for rewards and opening new credit cards can create problems. Be sure to avoid “point addiction,” where focusing too much on credit card rewards can motivate you to buy things you don’t need (or even especially want). Haphazardly hopping from card to card too often can create problems in your credit score. In addition, having many credit cards can hide major debt issues.
Habit #5: Establish a Credit Budget
It's easy to let your credit spending get out of hand, knowing you won't have to pay until later. It’s well established that the credit card effect causes some consumers to spend up to twice as much as they would if they paid for purchases with cash. This mindset leads to too-frequent swiping, and before you know it, you can be well above your budget. The important thing is not the card’s limit, but your personal spending limit. Successful cardholders are mindful of their spending and make sure they don't buy what they can't afford.
Regardless of how you pay at the time of purchase, it’s a crucial rule to avoid spending what you don't have, and this is essential to being a successful credit cardholder. Whether you're a first-time cardholder or have been carrying a card for decades, committing to these habits will put you on your way to happy, healthier credit.
2. We don’t love the name of this program, but it is popular, suggesting many people find it to be worthwhile.