5 Spending Habits That Won't Rebuild Your Credit

It is important to have a controlled and systematic approach while spending your money, as it can affect your credit history. In order to build a credit history you need to have some good financial habits. A credit score acts as a key measure when it comes to getting an approval on you loan or credit card transactions. If you want to be eligible to get credit cards with good rewards and benefits and also got home or auto loans at low interest rate, you need to have a high credit score. A low credit score decreases your chances of getting a good deal on the aforementioned offers. Therefore, it is important to take efforts to rebuild as well as maintain it.

Here are top 5 spending habits that you need to consider while rebuilding your credit:

1. Making use of debit cards

Using debit cards for all your purchases does not give you an opportunity to use the credit that is available to you via your credit cards. Unlike a credit card activity, all the purchases and bills paid by using your debit card are not reported to credit bureaus and hence do not help you in building a credit history. In order to build your creditworthiness you should ransact more on credit card. At the same time, make sure to  clear the entire due amount every month.

2. Cash Payments

Similar to debit cards, if you use cash as a mode of payment for all your expenses and bill payments, you miss out on an opportunity to build a credit. Therefore, you miss out on an opportunity to show banks and lenders your creditworthiness. As there is no lending involved in these transactions, one cannot monitor your payment behaviour. You should start building a credit history at an early age as it helps you get quicker approvals on auto or personal loans.

3. High credit utilisation ratio

This is one of the most important aspects you needs to focus on at the time of building a credit history. A higher credit utilisation ratio suggests you have been increasing your debt. This will not be good for your credit history and will in turn affect your credit score negatively. You need to have a control on you spending and also make sure to spend way below your credit limit. Ideally, you should only use 30%-40% of your credit limit. A high utilisation ratio also puts you as a high-risk borrower that is likely to default payments.

4. Paying minimum balance

You should never pay minimum amount due on your credit card payment as it will reflect badly on your credit score. It suggests that you are struggling to repay your credit debts and are still using the credit. Also, if you keep paying minimum amount due on your bills, you might end up paying a huge amount in interest fees.  

5. Buying things you can’t afford:

At the end of the day, it is extremely important to have a control on your spending behaviour. Make sure to buy things that you can easily afford.  Avoid buying expensive things that you clearly cannot afford. Know your income and budget and take efforts to stick to your monthly spending.

It must be noted that you need to control your spending and display a responsible payment behaviour in order to build your credit history.