Fixing Bad Credit Habits

It only takes one or two small missteps to wreak havoc on your credit score and potentially ruin your chances to secure future loans. While it can be hard to change the way you handle your finance, when it comes to your credit the effort will pay off in the long run. Here are seven common, yet costly, bad credit habits consumers make and changes that to be made to preserve a good credit score.

1.    Carrying All Your Cards - Only carry essential credit cards that you use on a regular basis to prevent loss or theft. If you are the victim of theft or lose your wallet, contact all issuing banks to freeze the accounts. If you can't recall every credit card in your wallet, it will be difficult to prevent the thief from using one to enjoy a free shopping spree. Pare your plastic down to one general card and one or two specific cards for retail or gasoline purchases.

2.    Making Late Payments - Always make all payments on time. A late payment negatively impacts your finances in three ways:

• The late fee, as high as $39, is simply a waste of money that could have been put toward the outstanding balance;
• The issuer may increase your APR;
• Payments 30 days past due may be reported to the credit reporting agencies and result in a negative mark on your credit report.

3.     Uncontrolled Spending - It's easy to get carried away when you indiscriminately use credit leads for purchases that should be paid for with cash. According to the Fair Isaac Corp., consumers have an average of nine credit card accounts. If you routinely use even half of your available credit for everyday purchases, rather than paying with cash, unnecessary debt will quickly add up. Credit cards are better suited for pricey goods and services with the option to pay over time and the built-in protections and warranties.

4.      Not Understanding the Account Terms - Read everything your creditors send. Many people check the balance, purchases, minimum payment due and payment due date but neglect to check out alerts, term changes and other important information that may be included in the monthly statements. Open all your mail promptly, scan letters and statements carefully, and call the lender, if you discover any adjustments you consider unreasonable.

5.      Use Cash Advance and Convenience Checks - Never use your credit account for short term loans. Cash advances are an expensive and inefficient way to manage your personal finances. Not only will you be charged a fee of between 2 and 5%, the APR will be significantly higher than those for purchases. If you're strapped to the point that you need to use a cash advance, it's time to overhaul your budget to make sure you have available cash through the end of each month.

6.      Never Reviewing Monthly Statements - Review and keep all sales receipts for two months. If you've been overcharged, correcting the problem will be much easier at the store with the receipt in hand. Under the Fair Credit Billing Act, you lose your charge-back rights 60 days after a charge appears on your credit card statement.

7.      Spreading the Debt to Too Many Accounts - Use balance transfers with discretion. Transferring balances on high-interest cards to lower-rate cards can be an effective money-saving technique, but it's easy for a good move to go wrong. Many people continue to charge on the new card and wind up with more debt, once the teaser rate expires. If you have become dependent on using credit, balance transfers will only get you deeper into debt.