Lending Tree data shows that credit card holders in RI have the 12th highest credit card balance in the U.S. with an average balance of $6,759.
In the third quarter of 2022, Americans were carrying credit card debt totaling more than $925 billion. This is according to the latest data from the Federal Reserve Bank of New York.
Lending Tree data shows that credit card holders in RI have the 12th highest credit card balance in the U.S. with an average balance of $6,759. Massachusetts comes in at 10th with an average balance of $6,942 and Connecticut comes in at 2nd with an average balance of $7,721. With average interest rates at a whopping 24%, those are some hefty balances to be carrying around in today’s economy.
Carrying around all that debt with a high-interest rate isn’t the only mistake Americans are making. Here are the top credit mistakes you’re likely making and how to stop them.
Carrying a balance. This is the number one mistake folks are making. Carrying that balance month-to-month can hurt your credit score. You will have a higher credit utilization, (which is the amount of debt you have compared to your available credit) and a higher interest charge, which will cost you extra money. Pay the balance off in full every month. Don’t charge anything if you don’t have the money to pay for it. If you find yourself charging because of the “cash back” rewards, remember that 3% you are earning isn’t making you money if you are paying 24% interest. Having an emergency fund in place will negate the need to use a credit card when an unexpected event occurs.
Missing a payment. Late or missed payments can result in a substantial drop in your credit score. Of course, that will only happen for payments over 30 days late. You can expect your credit score to drop anywhere from 17 to 83 points according to data from FICO. You could also incur a late payment penalty as well as an interest rate increase. Automate your payments so that you don’t ever miss a payment. If you are not comfortable setting up autopay, sent yourself a reminder on your phone at least one week before the due date.
Only making the minimum payment due. Your statement has a warning on it that reads: Minimum Payment Warning: If you make only the minimum payment for each period, you will pay more in interest, and it will take you longer to pay off your balance.
I am going to use one of my credit card statements as an example:
I have a balance of $1.131.29 with a minimum payment due of $25.00. If I don’t ever make another charge, and only pay the minimum payment of $25, it will take me 6 years and cost me $1,876. Now that is an extra $744.71. If I make a payment of $41.00 (what my credit card company recommends) it will take me 3 years to pay it off and cost a total of $1,477. That is still an extra $345.00. I don’t know about you, but I certainly do not want to pay this for the next 6 years, or even 3. Again, pay off your balance in full every month and reap the cash back or miles rewards on your card.
Taking out a cash advance. This is probably the worst mistake anyone can make. The second you take that cash; interest starts accruing immediately. There is NO grace period like on regular purchases. Also, you will most likely incur a cash advance fee and the interest rate is usually higher on cash advances. Just don’t do it.
Maxing out your credit card. When you charge the card’s full limit, you max out that credit card. Even if you pay off your balance in full within a few months after maxing out your credit card, you may pay the price of a lower credit score along with the bill. You also run the risk of not paying enough or adding more charges to exceed your limit and end up paying a fee or penalty. Most credit experts suggest keeping your credit utilization rate below 30%. Less than 10% is even better.
Closing a credit card. One of the factors that make up your credit score is the length of time your card has been open. When you close a credit card, the average length of your credit history is affected. It’s generally not advised to close a credit card, especially your oldest card. Although, there are times when it can make sense to close a credit card, such as when you’re charged an annual fee that isn’t outweighed by the card’s benefits.
Your credit score is arguably the most important grade you’ll ever receive in life. Even if you have made some of these common mistakes in the past, you can take the proper steps to improve your credit score and put yourself in a better financial position. It can take a while to establish a strong credit history, but it’s not hard.
From this day forward, do not charge anything to your credit card
that cannot be paid off at the end of the month.
