How To Break Bad Spending Habits to Help Your Credit Score
How to Break Bad Spending Habits to Improve Your Credit Score
Credit cards can either work for you or against you. Attractive rewards programs and greater financial freedom are a big part of their appeal over debit cards. However, just a few bad habits can mean that fees, interest charges and penalties accumulate to make a credit card cost more than it’s worth.
Here’s a guide on how to improve your credit score by breaking bad spending habits.
1. Don’t Miss Your Payment Deadlines
An important bad habit to break is forgetting to pay your bills on time. This not only has an adverse impact on your credit score over time but can result in fees and interest charges that make your bill more costly and difficult to pay back.
Consider setting up reminders or automatic payments so that you can stay on top of all your bills, including phone bills, energy bills and rent.
2. Pay More Than the Minimum Repayment
So long as you stick by tip #1, you won’t need to worry about this. But, in reality, many Australians carry debt on their credit card into the next month and beyond. If this happens to you, the best way to repay it is to always pay as much as you can above the minimum repayment.
By only paying minimum repayment amount, your debt will hang over your head for longer, accruing interest and ultimately costing you more.
3. Enforce a Self-Imposed Credit Limit
The bad habit that will damage your credit score the most is a lack of control and discipline over your spending.
If you find you are unable to pay back your credit each month, you can ask your bank to reduce your credit limit. However, if you ever want to increase it again, you will have to submit an application to your bank.
Alternatively, you can impose a credit limit yourself. Simply take your card out of your wallet once you reach the maximum level of credit you want to use and place it in a drawer until it’s paid off.
Put simply, the easiest way to ensure you pay on time and in full each month is to not make the task too difficult in the first place.
4. Get Rid of the Debt You Have
Outstanding debts appear in your credit report until you pay them off. Prioritise either your high interest or smallest debts first. Paying off high interest debts will save you from accruing interest whereas getting rid of your smallest debts will help motivate you to tackle the rest.
While you’re trying to eliminate your debt, you might need to become more disciplined with your spending. Examine your recent spending through your online banking account to find ways in which you could cut back.
5. Monitor Your Credit Score
By checking your credit score and report regularly, you ensure you are aware of errors or negative features. The sooner you rectify an overdue bill, for example, the sooner you can repair your credit score.
At Compare and Connect, we can help you monitor and understand your credit score [link to credit score page] or find a credit card that suits your habits and lifestyle. By scanning a wide array of offers, we can find a card with a credit limit, interest rates, fees and rewards that align with your spending habits. That way, staying on top of your bills and improving your credit score can come ea