New Credit, New Worries? How to Avoid Old Patterns

You’ve finally done it. After months or even years of reducing debt, staying in line with bill payments, and generally rebooting your financial life, you have finally been rewarded with a good credit score. The path to fix credit is never easy, but those who have been successful understand its value more than ever. While a freshly-polished score is certainly an accomplishment, do you have the skills and willpower to maintain it? Keep your future in check by avoiding the old patterns and potential pitfalls below. You owe it to yourself.

  1. Freebies. If you have dealt with bad credit for most of your life, you may not be aware of all the perks good credit can bring. Creditors, lenders, car dealerships, and retail stores alike all dangle the ever-tempting freebies in front of their creditworthy customers’ faces. Some might offer things like, “If you sign up for our credit card, we’ll give you a free $200 savings account.” They may even say, “Since you qualify for our preferred member program, we’ll give you 20 percent back on each purchase (only valid when you use your credit card).” Sure, freebies are a great part of being among the credit elite, but think twice before you throw your budget out the window. Free extras are only good if you can afford the original purchase in the first place. You worked hard to fix your credit issues for a reason. Hold tight to your convictions, and practice some restraint.

  2. Rationalizations. A major benefit of credit repair is lower interest rates. Better credit means a chance to refinance your home, lower your credit card APR, and find better deals on everyday expenses. However, don’t rationalize your newfound savings by looking for excuses to spend. If you find yourself thinking, “My refinance saves me $200 a month, so that’s more money for shopping,” it may be time to reexamine your priorities. There’s a slippery slope between even $200 and $250, which could land you right back into debt if you’re not careful. Fix your credit rationalizations by focusing on needs rather than wants. You’ll be more likely to save in the long run.

  3. New limits. Just as rationalizations tempt, a larger credit limit can be irresistible as well. Keep in mind that a new credit limit represents a new opportunity to improve your credit utilization ratio, or the amount of money you owe vs. your total credit limit, and this can benefit your credit scores. For example, Steve owes $4,000 on his Visa card. Recently, he had his limit extended from $10,000 to $16,000, reducing his ratio from 40 percent to 25 percent. Since a lower ratio results in a healthier score, don’t avoid chances to apply additional fixes to your credit rating. But remember: sticking to a budget is still paramount, irrespective of credit limits.