While everyone makes a mistake here and there, it is important that you exhibit behaviors that will improve your financial health, rather than hurt it. For example, behaviors that lead to good credit include using your credit card responsibly, paying off your card every month, and not spending money that you do not have. Sometimes, however, it can be easier to learn from mistakes, so we have compiled a list of five behaviors that lead to bad credit. Knowing the behaviors to avoid can assist you in not making the same mistakes that other people have.
- Using Your Credit Card(s) Too Much
A great benefit of credit cards is their convenience. You do not have to worry if you have the right amount of coins or cash; you can pay simply and quickly with a card. Additionally, if you have a rewards card, you may also receive points that you can use for benefits later on. It is important to keep this convenience in check. You should not use your credit card for overspending. Your credit card limit might be $3,000, but if you only make $2,500 a month, you should not be maxing out that limit. Only spend the money that you have, and you will avoid incurring unnecessary debt.
- Carrying Too Many Credit Cards
While having an additional card or two for different rewards programs or different expenses can be helpful, you should avoid carrying too many credit cards. You are more likely to overspend with additional lines of credit, and it can be hard to keep track of so many additional cards. For example, if you have six credit cards between store credit cards, gas credit cards, and your everyday credit card, get rid of at least three of those and start using the two or three cards you have left.
- Only Making the Minimum Payment
If you are spending money that you do not have with your credit card, you will be more likely to just make the minimum payment every month. This is a poor financial decision, as you will end paying significantly more for an item by only making the minimum payment as opposed to paying off your credit card. Additionally, if you are in the habit of only making the minimum payment, you may think that you have more money to spend than you actually do.
- Unwisely Cosigning a Loan/Credit Card
While you may have a legitimate reason for cosigning a loan or a credit card, be very careful about cosigning. You are responsible for paying off the loan or the card if the other person does not make the payments, so you want to only cosign for someone you trust. Even your best friend may not be a good financial decision, as their bad financial decisions with a loan or credit card can impact your credit score. One exception might be if you are a parent and you trust your child to make good financial decisions.
- Paying Bills Late
Paying your bills on time gives you a good payment history, as it will demonstrate that you are responsible and can afford the expenses you have incurred. Even if it is a tight month, you should make sure that you at least make the minimum payment as opposed to paying in full late because late payments have a deleterious impact on your credit score.
In conclusion, it is important to avoid these five behaviors that lead to bad credit. If you watch how many credit cards you have and how you are using those cards and making the payments and carefully consider before cosigning a loan, you can avoid making decisions that will negatively impact your financial health.