6 Things to Do If Your Credit Card Balances Are Creeping Up

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About half of all Americans use their credit cards strictly as a method of payment, avoiding interest charges by paying each statement balance in full. The other half will frequently (or always) carry a balance on their credit cards. And while most credit card users will tell themselves that they have their debt under control, some will eventually become worried when their balances keep growing.

Since it’s considered unsecured debt, credit card interest rates are usually higher than other types of financing such as car loans and mortgages. And since credit card interest payments are never tax-deductible, letting your balance grow can be extremely costly. Furthermore, having a high credit card balance will raise your debt-to-credit ratio, and can hurt your credit score. With a lower credit score, you will receive less favorable interest rates when applying for other financing. Therefore, it’s vital that you control your credit card balances before they begin to control your personal finances. (You can see where you credit stands by viewing your two free credit scores, updated every 14 days, on Credit.com.) 

If your credit card balances are creeping up and it’s starting to creep you out, consider these six things.

1. Go On a Diet

Eating less won’t necessarily help you cut your credit card balance (unless you eat at restaurants a lot), but it can make sense to go on a spending diet. Start by cutting out all unnecessary expenditures, while postponing essential purchases for as long as possible. Then, look for ways to save money on all your essential purchases. 

2. Increase Your Monthly Payments

One of the worst mistakes that you can make with your credit cards is to only pay the minimum balance. When you pay just the minimum, it can take years to pay off your credit card debt, even if you don’t make any new charges. In fact, you should be paying as much as you can in order to lower your interest charges and pay down your balance as soon as possible.

3. Make Your Payments Sooner

Just because your statement shows a due date a few weeks in the future, doesn’t mean that you should wait that long to make your payment. Credit card interest is calculated based on your average daily balance, so you will save money by making your payments as soon as you can.

4. Make More than One Payment Each Month

Another way to pay down your credit balances faster is to make multiple payments each month. For example, you could choose to make a payment twice a month after you receive your paycheck, or anytime you receive a significant amount of cash. When you do this, you will reduce your average daily balance with each payment, which will lower your interest charges.

5. Use a Different Method of Payment

By design, credit cards make it easy to spend money you don’t have, which enables some people to get carried away. If this is happening to you, it might be time to store your credit cards in a secure place and temporarily start using cash, checks or debit cards. Some people put their cards in their sock drawer, but others will lock them in their safe or even freeze them in a block of ice.

6. Consider a Balance Transfer

The biggest problem with a high credit card balance is the interest charges that you face. Thankfully, there are credit cards that offer 0% annual percentage rate (APR) promotional financing on balance transfers that last from as little as six months to as long as 21 months. When you open a new credit card account with one of these offers, you can transfer your existing balances to that account and avoid interest charges during its promotional financing period. When the promotional financing expires, the standard interest rate will apply to any unpaid balance. Just be aware that most credit cards with 0% APR promotional financing offers will apply a 3% to 5% balance transfer fee to the new balance.

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4 Reasons Your Credit Score Isn’t Improving

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We hear it from readers constantly: I’m paying all my bills on time, so why isn’t my credit score going up?

This feeling that you’re doing everything right and not getting rewarded for it is one of the most frustrating things about credit scores. And the simplest answer to that question is almost as frustrating: It depends.

First of all, credit scores are the result of complicated formulas, so that makes it difficult for the average person (even personal finance writers) to pinpoint exactly why your score is the way it is. On top of that, there are dozens of credit scoring formulas, and you can’t keep track of all of them. Finally, and here’s the really important part, everyone’s credit history is unique. Without looking at your credit report, a credit expert can’t say exactly why your score isn’t changing.

In general terms, there are a few things that could be causing your credit score to stagnate. Here are four of them.

1. Your Credit Card Balances Are Too High

Payment history has the greatest impact on your credit scores, but making on-time payments alone won’t give you a good credit score. It’s certainly important, given how much a late payment can hurt your credit score (it can knock about 100 points off your score, depending on what else is in your credit history), but there are four other major factors that affect your score. The next-most important (after payment history) is your amount of debt.

The key is to keep your revolving credit balances (like credit card balances) as low as possible. This relates to credit utilization: Your revolving credit accounts generally have limits, and the closer your credit balances are to those limits, the higher your utilization. High utilization, in which your debt is more than 30% of your available credit limit, will keep your credit scores down.

“I think it’s common for a high credit card balance to keep scores [stagnant and low],” Jeff Richardson, a spokesman for VantageScore Solutions, said in an email. “Consumers will and should expect their scores to increase as a delinquency gets older and older, but if they still have a high utilization, it’s certainly possible that the score can only rise so much until they pay down the balances on their card(s).”

2. Something Seriously Negative in Your Past Is Dragging You Down

Perhaps you’re paying debts on time and keeping your credit utilization low. In that case, you may want to look at other aspects of your credit history. If there’s something exceptionally negative in your credit history, like a bankruptcy or foreclosure, it can take many years for your score to recover. Most negative information can remain on your credit reports for up to 7 years, so while you wait for the effect to lessen over time, it can help to focus on what you can control: making payments on time and keeping your credit utilization low.

3. You’re Missing Something Important

Though they are the most influential factors in your credit score, on-time payments and credit utilization are not the only things that determine it. How often you apply for new credit, the length of your credit history and the mix of accounts in your file also play an important role in credit scoring.

There’s not much you can do about your length of credit history other than exercising a lot of patience. The longer you’ve been an active credit user, the better your score will theoretically be, but there’s nothing you can do to speed up time. One of the best tips on this topic is to keep your oldest credit account open, because your credit age is an average of your accounts’ ages. You may have a good reason for closing an old account, but it’s a decision you shouldn’t make lightly.

As far as mix of accounts goes, you would ideally have active installment and revolving accounts to show that you’re capable of responsibly managing different kinds of credit. Sure, you may be doing a fantastic job paying your credit cards on time and keeping their balances low, but without any active installment loans, that’s only going to do so much for your credit.

Staying on top of just one credit account can be challenging, although doing that well can give you a great score. Mix of accounts is a small part of what determines your credit scores, so opening up a new credit account solely for the sake of your credit score doesn’t usually make much sense, especially if you can’t manage it and wind up in debt.

4. There Are Errors on Your Credit Report

When’s the last time you checked your free annual credit reports? It’s a smart thing to do regularly, as you can spot errors that could be keeping your credit score lower than it should be. If you find an error on your credit report — that can be anything as little as a misspelled name or as problematic as a wrongful late-payment notation — you can dispute it with each of the credit bureaus reporting the wrong information.

If you find several problems or are overwhelmed by the task of trying to fix your credit, you can hire professionals to help out. Keep in mind, anything a credit repair company does, you can do yourself for free. Also, make sure to research any companies you’re considering. A legitimate credit repair company will not promise a specific jump in your credit score, which is illegal. (You can learn more about how credit repair works here.)

It’s also a good idea to check your credit scores regularly. You can see two for free, updated each month, on Credit.com. Viewing these can help you track changes in your credit scores and let you know if and how you should adjust your behaviors to build good credit.

[Offer: If you need help fixing errors on your credit report, Lexington Law could help you meet your goals. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

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