5 Good Credit Habits to Start in 2015

Improving your credit and debt situation in 2015 may not require drastic changes. In fact, simply developing a few good habits can go a long way toward putting you in a better place by this time next year. Here are five of them.

1. Ensure On-Time Payments

We all know paying our bills on time is important to maintaining good credit scores and avoiding late fees. But let’s face it: Sometimes we slip up despite our good intentions. It has happened to me: I once forgot to hit the “submit” button when making a credit card payment online, and another time I got a notice that I had missed a car payment I could have sworn I had paid online.

To make this a habit: Set up automatic payments so the money comes straight out of your checking or savings account on the due date. If you aren’t comfortable with that option, then at least set up alerts to notify you by text message or email when a payment is due.

2. Pay Back Debt With a Plan

If you’re carrying credit card debt, there’s a good chance that paying it off is one of the goals you are considering in 2015. If so, the most important thing you can do right now is to create a plan for becoming debt-free. Whether you decide to pay off the card with the smallest balance first or tackle the one with the highest interest rate first isn’t nearly as important as committing to a specific plan so you can track and measure your progress.

To make it a habit: Start with a credit card payoff calculator like this one to find out how much you’ll have to pay each month to pay off your debt within your targeted time frame. Commit to paying that much each month — without taking on new debt — until you are debt-free.

3. Use Credit Cards the Right Way

I’ve heard plenty of consumers call credit cards “evil” over the years, but if you use them the right way, you can save money and shop safely. That means only using them to make purchases you would have made if you paid in cash. It means spending what you can afford to repay before interest kicks in. And if you can’t do that (the car breaks down, you have an unexpected visit to the ER, etc.), you have a plan to pay off the balance in three years or less. It also means tracking your spending as it happens and reviewing your statements as they arrive for suspicious charges.

To make it a habit: Choose one card for everyday purchases. It should be a card with a grace period and no balance so that you avoid interest. (A rewards card is a good option for this purpose.) Keep track of your spending so you don’t spend more than you can afford to pay back when the bill comes due. Then, if you don’t already have one, compare low-rate credit card offers so you can get one to use as a backup when emergency purchases arise that you have to pay off over time.

4. Watch Your Balances

Even if you pay your balances in full each month, your credit score may suffer if the balances listed on your credit reports are high in comparison to your credit limits. Let’s say you pulled out one of your retail cards over the holidays because you earned an extra discount for those purchases. And let’s say your credit limit on that card is $500. If you charged $400, that’s 80% of your available credit. When that card issuer sent you the bill, it likely also reported your balance of $400 to the credit reporting agencies. The fact that you are going to pay it off won’t likely be reported until your next billing cycle closes — and the balance at that point in time is shared with the credit agencies. In the meantime your credit scores have most likely been negatively affected by that 80% debt usage ratio, which is considered very high.

To make it a habit: Keep track of your balances and try to keep your balance below 20% to 25% of the credit line (10% is even better). If you need to make larger purchases, consider making a payment online at least a few days before your billing cycle closes. If your issuer reports balances as of the “statement closing date” (many do), your reported balance will be lower and you won’t have to worry about your credit score dropping.You can track how your debt affects your credit by getting your credit scores for free on Credit.com.

5. Lower Your Rates

Interest rates have remained low through most of 2014, but many analysts expect them to start creeping up in 2015, so the more you can do now to lock in low rates, the better. If your credit scores have improved since you first financed your car, for example, you may be able to refinance your auto loan. Similarly, you may want to see whether you can get a lower rate on your mortgage. If your home used to be underwater, for example, but now you have equity, this may be a good time to refinance. Even credit card interest rates may be negotiated. But if you’re not successful when asking your issuer to cut you a break, you may be able to use a balance transfer or a consolidation loan to lock in a better deal.

To make it a habit: Mark your calendar for when you plan to review all your interest rates and shop for lower ones. Make it a yearly event. As Marc Eisenson, co-author of my book Reduce Debt, Reduce Stress likes to say, “Not asking is an automatic ‘no’.”