5 Bad Credit Card Habits to Avoid in the New Year
As the New Year begins, you may be making resolutions or setting goals that include improving your finances. Some 36% of Americans made financial resolutions to kick off 2017, according to a Fidelity survey.
If you’re focused on finances, improving your credit health may be at the top of your list. Ditching your bad credit card habits could be a big step in the right direction.
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Bad Credit Card Habits to Break in the New Year
Bad credit card habits (like paying late and running up high balances) can hurt your credit score, and they can cost you money. As you hit the reset button this year, consider whether these five credit card habits are holding you back:
1. Using Your Card for Impulse Purchases
Impulse purchases can be a budget-killer and, if you’re using credit to pay for them, you may not notice how much you’re spending until your statement arrives. A better habit to practice is to use your card for planned spending only.
For instance, you might use your credit card to pay certain bills each month, and then pay the balance off in full. You may reserve your card for travel only or use it to make a large purchase that you have a plan for paying off over time. The key is to be conscious of what’s going on the card and leave the impulse buys at the checkout.
2. Chasing New Account Bonuses
A large introductory rewards bonus can certainly be a tempting reason to open a new credit card account, but you have to think about what that means for your credit score. Inquiries for new credit show up on your credit report and each one can ding your score by a few points.
Not only that, but you often have to meet a minimum spending requirement to earn an introductory bonus. You may be snagging extra rewards, but you could also be creating debt if you’re not able to pay the balance off right away. A better habit to develop? Applying for new credit cards only when it’s absolutely necessary.
3. Relying on 0% Financing for Big-Ticket Purchases
Paying interest on your credit card balance from month to month makes everything you charge more expensive. When a card is offering a 0% introductory Annual Percentage Rate (APR), it may seem too good to pass up if you’re planning to finance something major, like new appliances or an extended vacation.
The problem is that 0% financing doesn’t last forever; that introductory APR has an expiration date. If you don’t pay the balance off before the regular purchase APR kicks in, you’ll be charged interest on anything you still owe.
If you’re considering a 0% financing offer, or a 0% balance transfer to consolidate some of your other credit card debt, do the math first. Calculate how much the balance transfer fee will add to what you owe. Then, break down the total to see how much you’ll need to pay each month to pay it off before the promotional rate ends. If it looks like too much of a stretch budget-wise, you may be better off taking a pass.
4. Letting Credit Card Rewards Go Unused
Rewards credit cards have the potential to save you a decent chunk of change, but only if you’re using them wisely. This means knowing how you can earn rewards and then putting them to use once you’ve earned them.
Letting rewards pile up with no thought as to how you’ll use them or, even worse, expire, are two bad credit card habits to dodge. If you haven’t reviewed your rewards balance lately, now’s the time to take a second look. You may be able to turn your rewards into cash, a free trip or a statement credit, all of which can put you ahead financially.
5. Shortchanging Your Rewards Value
Even worse than not using your credit card rewards is using them the wrong way. Your card may give you multiple ways to redeem your rewards, yet they may not all have the same value. For instance, you might have a card that allows you to redeem miles for travel at a value of 1.2 cents per dollar, but those same miles might only be worth 0.7 cents per dollar when you redeem for gift cards. Regularly reviewing your rewards structure can help you determine which option gives you the most bang for your buck.
The New Year is an ideal time to get rid of bad credit card habits. At the same time, introducing new and better ones could lead to a stronger credit score and a healthier bottom line by year’s end.
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