4 Bad Credit Habits to Kick, Once and for All

There’s no doubt about it, the better your credit habits and your credit score, the better interest rate you’ll secure on a mortgage loan. Play around with our mortgage calculator and you’ll see that even fractions of a point can have your monthly payments jumping up hundreds of dollars. Also, the more solid your credit rating, the more quickly you’ll be able to achieve any number of financial goals.

So on your journey toward homeownership or simply winning at adulthood, here are four seemingly innocent mistakes to avoid.

1. Budgeting for Minimum Payments

Counterintuitive as it may seem, it makes little sense, from a long-term perspective, to make smaller credit card payments and set aside larger amounts of money. (Making smaller credit card payments in order to spend larger amounts of money is, of course, a much worse habit.) It all boils down to high interest rates, for which most credit cards are notorious. If you’re making only the minimum payment on your balance, you’re prolonging the amount of time your credit card company can collect interest from you.

It’s a little like throwing money away, when you think about it—and if you’re not convinced, go ahead and read through your entire statement until you find the section that explains exactly how long it will take to pay the balance off if you make just the minimum payment each month. According to a recent study by NerdWallet, this strategy may take 44 years, if applied to $15,335 in credit card debt (the American Household average). However possible, allocate as much money as you can to paying off credit cards that carry interest.

2.  Not Making Every Payment on time

You’ve got a great credit score, you use your credit responsibly … so a late payment here or there is no big deal, right? Wrong.As infuriating as it is, making a late payment or two is a great way to make your score plunge 50 points. Whenever it’s possible, sign up for automatic payments for your mortgage payments, auto loans and credit cards.

3. Maxing out your Credit Lines

Your credit score—and your ability to get the mortgage you want—is determined in part by your debt-to-income ratio. Furthermore, a maxed out card can, per FICO, lower your score by as many as 30 points. Simply put, it doesn’t look good to creditors when you have maxed out credit accounts, and it may preclude you from achieving certain financial milestones.

4. Opening Retail Credit Lines

Let’s say you’re refurnishing your bedroom and have an opportunity to pay for the new furniture on a zero-interest credit line over 12, or maybe even 18 months. Although the decision might seem like a no-brainer—and maybe it is a good decision—there are some factors you need to consider. First, are you 100% certain you’ll be able to pay off the balance over the agreed-upon amount of time? In some instances, failing to do so means having to pay interest on the entire amount.

Second, is there an existing account you have, on which it makes sense to place the charge and simply pay it off immediately? (You might take this opportunity to earn points or miles). Generally speaking, if you don’t need to use a financing option for retail purposes, it’s best not to. As for opening retail accounts to take advantage of additional savings that sound so enticing? Do so with discretion—for every credit account you open, there will be a hard inquiry. Too many hard inquiries will have a negative bearing on your score.

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