8 good credit habits that will improve your life
By Allie Johnson
February 1, 2016
Building a great credit profile doesn’t happen overnight. It’s the result of many small good habits practiced over time.
“Most people would like to think something magically is going to come along and make their money situation different, but it takes hard work,” says Kathleen Gurney, CEO of The Financial Psychology Corp. and author of “Your Money Personality: What It Is and How You Can Profit From It.”
How do you build a good habit? It takes doing something daily, weekly, monthly, quarterly and annually. Smartphone reminders can help or notes on a calendar on the wall. There are even apps to help you build new habits. Find something that works for you, and then make these eight good credit habits a part of your routine:
Good credit habit No. 1: Know where your money goes. Check your finances daily, Gurney says. That means glancing at your bank account online, looking at what you spent that day in cash, debit, credit or automatic payments from your bank account, as well as reviewing your household budget.
If you spent too much on a Saturday dinner out, make a mental note to dine at a cheaper place or eat dinner at home next week. “When you keep current, you can adjust what you’re doing,” she says.
How to get in the habit: Stick a Post-It note on your bathroom mirror or create a smartphone alert on your digital calendar — or find some other money checkup reminder that works for you, Gurney says. A habit app, such as Habit List, Habit Streak or Streaks, is helpful because you can track your progress. “It teaches you to compete with yourself,” she says.
Good credit habit No. 2: Use credit cards sparingly. You don’t want to max out your cards or even carry a balance from month to month unless you have a quick payoff plan in place, but you should use your credit cards regularly to keep them active and prove you can handle credit. Brad Hines, a Boston digital marketing strategist and personal finance blogger, uses an American Express rewards card as his primary card, but says he makes a point of using his other two cards at least every couple of months.
Once you start to act like a person who has good money habits, it changes how you feel about yourself and what you do. These little psychological tricks have a big payoff.”
— Kathleen Gurney, CEO
of The Financial Psychology Corp.
How to get in the habit: One easy way to make sure your plastic gets a workout with no temptation to spend on stuff you don’t need? Set the card to be charged automatically each month for an inexpensive recurring bill, such as your auto insurance or cellphone. If you do that, of course, you need to remember to pay the credit card bill, and you can set up alerts on your phone or automatic payments on your card so you won’t forget.
Good credit habit No. 3: Check your card accounts. Scan your credit card accounts at least once a month for fraudulent purchases or mistakes, such as double billing, says Stephen Lesavich, attorney and co-author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards.”
How to get in the habit: It can be easy to miss an emailed statement, so Lesavich recommends getting old-fashioned paper statements in the mail. And you can always log on to your card issuer’s website to check your statements and review your purchases.
Good credit habit No. 4: Pay your bills on time. It’s crucial to pay your bills in a timely manner because one missed payment can drag down your score, Gurney says.
How to get in the habit: Many card issuers, utility providers and other creditors allow you to change the due date of your bill to a date that works best for you. If you get paid twice a month, see if you can make half your bills due after your first payday and the other half due after your second, Lesavich says. Or set up automatic payments, Hines suggests. You can try pairing up with a buddy to help each other keep track of finances, says Hersh Shefrin, a behavioral finance expert and author of the book “Behavioral Risk Management.” He says: “You can call each other once a month to say, ‘Did you pay your bills?’”
Good credit habit No. 5: Live within your means. Sticking to a monthly budget based on your priorities can help you live within your means without feeling deprived. For example, if going out to eat with your girlfriends is a priority, you might need to cut back on your spending on clothes, Gurney says.
How to get in the habit: Changing a habit, such as overspending, is hardest when you have to quit an old habit and replace it with a new one, Shefrin says. Try using the habit change flowchart from Charles Duhigg, author of “The Power of Habit,” to swap bad habits for better ones. For example, if a bad day at work often triggers an online shoe-shopping spree, try instead taking a bubble bath or reading a book to de-stress.
Good credit habit No. 6: Build an emergency fund. Establish an emergency fund so you don’t have to go into debt every time you need a new appliance, a car repair or the services of a plumber. Tuck away at least enough money for two months — and ideally six months — of expenses, Shefrin says.
I was running myself ragged trying to remember to pay multiple bills due at different times.”
— Brad Hines,
a Boston digital marketing strategist
and personal finance blogger,
who switched his cards to auto pay
How to get in the habit: If you use cash to pay for items when you’re out shopping, put your change in your emergency fund. Shefrin suggests carrying a second wallet in your purse or pocket. When you get change back, stick it in your spare wallet, then periodically deposit those funds into your emergency fund bank account. Another option: Write yourself a check, set up an auto transfer or ask your payroll department to create a separate direct deposit to your savings account each month.
Good credit habit No. 7: Pay your credit cards in full. Paying off your balance every month will help you avoid paying hefty interest and minimize the amount of available credit you’re using, which is great for your credit score. Not to mention that having zero balances reduces financial stress.
How to get in the habit: If you’ve got debt and can’t pay it all at once, using a debt pay-down app, such as Debt Manager, Debt Free or Debt Tracker, on your smartphone can help motivate you to pay it off faster, Gurney says. If you’re not carrying debt, log into your card issuer’s site and choose the option to automatically pay your card in full each month through your checking account, Hines says. Before he set his cards to automatically pay in full, “I was running myself ragged trying to remember to pay multiple bills due at different times,” he says. The caveat: Make sure you have enough of a cushion in your bank account so the automatic payments don’t put you in the red.
Good credit habit No. 8: Check your credit reports. Look over your credit reports every couple of months, keeping an eye out for errors, surprise negative items (such as a medical collection for a bill you didn’t know you owed) or signs of identity theft. “You never know what might be on there,” Gurney says.
How to get in the habit: Schedule your credit report checks on your online calendar, and add an alert to remind you to do it, Gurney says. Use AnnualCreditReport.com, where you can get a free report from each major credit bureau once a year. By staggering your credit report checks — for example, looking at Experian in January, TransUnion in May and Equifax in September — you can monitor your credit throughout the year.
“Once you start to act like a person who has good money habits, it changes how you feel about yourself and what you do,” Gurney says. “These little psychological tricks have a big payoff.”