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By: AgFed Credit Union

Welcome to AgFed Credit Union's MoneyDig blog! 

Get confident about your personal finances with a number of articles, tips, advice and more.


Bad Credit Habits to Kick in the New Year

 Jan 04, 2024
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If you’re facing financial woes due to bad credit habits, it’s never too late to turn over a new leaf and commit to improving your credit behavior. The season of setting resolutions is the perfect time to break free from old habits and develop better ones!

Credit cards can be an effective financial tool and provide a host of benefits when used responsibly. To ensure that your credit cards positively impact your financial picture, it’s crucial to avoid some common mistakes that can create bad habits. Fortunately, every bad habit can be replaced with a healthy one! We’re here to help highlight some credit behaviors you can kick to the curb to improve your credit score.  


Opening Too Many Cards

There’s no shortage of credit card offers today. Whenever you turn on the TV, open your mailbox, check social media, or walk into a store, someone tries to convince you to open a credit card. While having more than one credit card at a time is okay, it’s not good for your credit score to apply for multiple cards in a short time span.

If you want more than one credit account, make sure you space out applications and only apply for credit that you really need. Opening too many new accounts at once signals to lenders that you are not a responsible borrower, which could result in a drop in your overall credit score. Plus, having multiple cards in your wallet can multiply the temptation to overspend, leaving you with the burden of managing several monthly bills.


Only Making Minimum Payments

The minimum payment on your credit card bill only reflects a small fraction of your total balance. Typically, this amount covers the interest charged during that period and any applicable fees. It can be tempting only to make your minimum monthly payment, but this can be a costly mistake.

By only making the minimum payment, your principal balance (the amount you borrowed) decreases minimally, if at all. That means that it will take you much longer to chip away at your owed balance, and, in the meantime, you’ll be paying more interest. Always try to pay as much as possible to reduce your debt faster and save on interest charges.


Missing Payments or Paying Late

It may seem like a few late payments are no big deal, but they can have significant consequences. Not only will you have to pay a late fee (which generally ranges from $30 to $40), but late and missed payments can also negatively impact your credit score.

Your record of on-time payments accounts for 35% of your credit rating, making it the biggest factor in determining your score. Late and missed payments can remain on your credit history for up to seven years. Commit to always making your payments on time going forward. Setting up reminders on your phone is helpful to ensure you never miss a due date.


Carrying a High Balance

Making your monthly payments on time will improve your credit score, but that’s only part of the equation. Your total balance is another key factor that affects your score. A high balance coupled with a high credit utilization ratio can severely damage your credit rating.

Your credit utilization ratio refers to the amount of your total available credit you are currently “utilizing.” To calculate your credit card utilization ratio, divide your outstanding balance by your total credit limit, then multiply by 100 to obtain a percentage.

For example, if you have a credit card with a $2,000 balance and your credit limit is $5,000, your ratio would be 40% ($2,000 ÷ $5,000 x 100). Financial experts typically recommend keeping your overall credit utilization ratio below 30%.


Failing to Review Your Statements

With the efficiency of online account access and digital apps, paying your credit card bills is easier than ever. You can even set up automatic payments to save time and ensure you never miss a payment. With the ease of today’s digital age, it’s important not to neglect to review your monthly credit card statements.

Overlooking this step can be a costly mistake because reviewing your transactions helps you see exactly where and how you’re spending your money. It also allows you to reevaluate your spending habits and make changes for the better. Additionally, reviewing your statements and transaction history is a proven way to ensure you don’t miss any fraudulent activity that might occur should your card become compromised.


Closing Old Cards

The length of your credit history is another factor affecting your credit score. While this part of your score largely depends on your age and the number of years you’ve successfully managed credit, other factors come into play.

For example, the average age of your credit accounts. People often get new credit cards and decide to close their older ones. However, doing so decreases the average age of your accounts. If you can avoid the temptation of spending, it’s wise to keep those older cards open. This strategy will also increase your credit utilization ratio and boost your score.


Not Having a Repayment Plan

One of the main reasons people find themselves in debt is due to excessive spending without regard to their budget. To prevent finding yourself in a similar situation, it’s crucial to closely track your spending and create a repayment plan.

For instance, you might focus on paying off the debt with the highest interest rate first. Or, many people like to eliminate their lowest dollar amount debt initially, giving them a little psychological and motivational boost. Whatever strategy you choose, always strive to pay more than the minimum balance to avoid costly interest charges.


We’re Here to Help!

The new year is the perfect time to replace bad credit habits with more positive behaviors. Small steps can lead to significant results that will ultimately unlock the door to better interest rates and more favorable borrowing terms.

If you’re interested in reducing credit card debt this year, we’re prepared to help. From balance transfers to debt consolidation loans, many affordable options are available. To get started, please give us a call.

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