Just about everyone has a few destructive habits to break — and when it comes to credit, the sooner you replace them with more positive behaviors, the more money you’ll save.
1.Keeping too many cards in your wallet: Quick: List every credit card in your wallet right now. If you can’t, it’s time to revise your card-carrying ways. The average number of credit accounts a consumer holds is nine, reports MyFico, the consumer division of Fair Isaac Corp., the company that developed the FICO score. Keeping more cards than necessary on your person is a dangerous practice. In the event of loss or theft, your first task would be to alert all issuing banks before someone else takes them on a shopping spree — which you can’t do with cards you’ve forgotten about.
Good credit habit: Only carry the credit cards you really need and use. Pare your plastic to the essentials. Most people only need a couple of credit cards on hand — one general purpose card that can be used anywhere and a retail card for the store you frequent most.
2.Charging when you should be cashing: Do you swipe your credit cards for just about every financial transaction from groceries to your mortgage? If so, it’s a good bet this routine is creating an overabundance of unnecessary debt. While one of the primary perks credit cards offer is the ability to delay payment, interest free, for at least a couple of weeks, this inherent convenience can also make them too tempting to lean on.
Good credit habit: Use credit cards for the right purchases. Fast food, magazines, drugstore goods and other small items add up, and they certainly do not need to be financed. From now on, use cash or a debit card for those daily expenses. Because of the built-in consumer protection credit cards provide and the option to pay over time, they are better suited for pricey — though planned-for — goods and services, such as furniture, vacations and electronics.
3. Not reading creditor mail: Who wants to read all that bulky, boring paperwork? You do. Many people just look for their balance, requested payment amount and due date, but there’s a lot more in that envelope you should be examining. Your creditor may be alerting you to important term changes that affect your fee structure, interest rate, rewards program or grace period. It’s a common occurrence. According to a study by the nonprofit group Consumer Action, nine out of the top 10 U.S. credit card issuers have change-of-terms clauses in their solicitation materials.
Good credit habit: Read everything your creditors send. Open all your mail promptly, scan letters and statements carefully, and call if you discover any adjustments you deem unreasonable. For example, if your credit issuer increases your interest rate, you have the opportunity to call the issuer and discuss your options of keeping your old rate, accepting the new rate or opting out of rate increases by paying off the balance and closing the card.
4.Using your credit account as an ATM: Relying on cash advances when your checking account has run dry is an expensive and inefficient way to manage your personal finances. Why? Most creditors charge a fee of somewhere between 2 percent and 4 percent of the withdrawal, the APR for advances is often higher than those for purchases, and interest kicks in the moment you take the money out. Further, most creditors structure the account so that you have to pay off any balances for purchases before you start repaying the costlier cash advance balance.
Good credit habit: Stretch your cash so you have enough until your next paycheck. If you frequently turn to cash advances to make ends meet, you’re overdue for a budget overhaul. Know what your income is and expenses are, and then plan your cash flow to avoid falling short before your next payday. So you don’t overspend in the beginning, make checking all of your account balances an everyday event.
5.Losing track of rewards points: Many cardholders never monitor the points they’ve earned through their rewards programs, and they end up missing out on all the goodies they’re entitled to. There’s a reason so many give up or lose track. According to Nancy Gordon, executive vice president of Citi’s ThankYou Network, most people are enrolled in multiple rewards programs, which makes it difficult to stay on top of programs and points. “Individual programs may use very different methods for keeping their members informed about points earned,” Gordon says. “It’s not easy for consumers to have a clear view of how many points they actually have at any given time.”
Good credit habit: Use one rewards program with a streamlined system. Stay abreast of points by using a rewards card that comes equipped with a user-friendly tracking program. Visit the bank’s website to see if you can easily check your point balance and find out how to redeem them. As Citi’s ThankYou Network does, it should allow you to receive communication not just from the credit issuer, but from participating companies as well.
6.Not communicating with joint cardholders: Two or more people on one card can result in credit chaos. If you don’t consistently update each other on current account activity, things can spiral out of control. For example, if there’s no consensus on who is supposed to pay the bill, the account could go unpaid, resulting in late fees and credit damage. Also, one party could charge a large amount without the other’s knowledge, resulting in over-the-limit fees if another purchase is made.
Good credit habit: Hold regular credit management meetings. Make talking to all cardholders a priority. Discuss account activity, review balances and designate one person to take payment responsibility. If you need extra communication help, consider using personal finance software, such as that developed by Mint.com. “It can be set up to e-mail bill reminders, low-balance alerts or large-purchase alerts to multiple e-mails,” says founder and CEO Aaron Patzer.
7.Tossing all sales slips: Many people routinely discard the receipts a cashier gives them for purchases made on a credit card without so much as a glance. Mistakes do happen, however, and most of the time they’re due to human error. Not reviewing and keeping these sales slips can lead to substantial financial loss. “If you have been overcharged, identifying and correcting the billing problem at the point of sale will be much easier than trying to reconstruct the problem later upon reviewing your credit card statement,” warns Consumer Action spokesman Joe Ridout.
Good credit habit: Keep charge receipts for two months. According to Ridout, you can reduce the possibility of being overcharged to an absolute minimum by retaining your receipts and comparing them to your credit card statements. Don’t delay this process. Under the Fair Credit Billing Act, you lose your charge-back rights 60 days after a charge appears on your credit card statement.
If any of these widespread bad habits seem a little too familiar, it’s time to rework old patterns and create a healthier relationship with credit. The sooner you do, the faster you’ll see a vast improvement in your personal finance system.