For the best credit score, there are things you shouldn’t do with a credit card. But since you probably didn’t learn credit management in school, you may make a few mistakes along the way. A credit card is an excellent credit building resource, and in an emergency, a credit card can get you out of a jam. However, your experience with credit cards is all in how you manage your account. Here are seven foolish things you shouldn’t do with a credit card.
1. Paying Your Credit Card Bill Late
Of all the things you shouldn’t do with a credit card, ignoring due dates tops the list. A late payment doesn’t show up on your credit report until you’re 30 days behind. This however, doesn’t mean that you won’t get hit with late fees. Plus, when you pay late, this creates a shaky relationship with your credit card company. If you were to ask for a better rate down the road, the creditor will pull your payment record, and if it isn’t good, they may deny your request.
2. Paying Only the Minimum
How bad do you want to eliminate debt? Here’s the thing: if you owe thousands of dollars on a card, you aren’t going to pay off the amount owed with minimum payments alone. Okay, I take that back. You will pay off the card - in about five to ten years, on average. Minimum payments are designed to keep you in debt, and if you continue to use the card, you’ll never get out the hole.
3. Lending out Your Card
You are accountable for all charges on your account, with the exception of fraud. Therefore, if you give your kid, sister, friend or anyone else permission to use your credit card, be prepared to deal with the damage. Not to suggest that these persons are irresponsible and will run up your account, but anything can happen once you put the card in their hands. They may lose the card, and if the person has a spending problem, they might go a little overboard. It’s better to be safe than sorry and say no to other people asking to use your card..
4. Taking a Cash Advance
I know, it’s tempting. Go to the ATM, enter your credit card pin and withdraw cash. The perfect solution if you’re short on cash, right? Well, not exactly. Cash advances are convenient, but they aren’t cheap. The interest rate on a cash advance is typically higher than the rate on regular purchases.
5. Closing a Credit Card Account
If you have credit cards that you aren’t using, closing a few accounts and lightening your wallet make sense. But if you’re thinking about closing an older account, this moves can hurt you in the long run. Closing a credit card account may not have an immediate impact on your credit score since closed accounts remain on your credit report for up to ten years. However, the account will eventually fall off your report, and when it does, this can shorten the length of your credit history, lowering your credit score. If you’re going to close an account, start with your newest accounts.
6. Failing to Check Your Account Online
Don’t wait for statements to arrive in the mail. Identity thieves know sneaky ways for getting a hand on your credit card information. They can go on shopping sprees with your card right under your nose - that’s if you don’t regularly monitor your accounts. Sign up for online account management and check your accounts once or twice a week.
7. Maxing out Your Credit Card
Putting too much on your card is the fastest way to lower your credit score. A low credit utilization is key to a good score, plus it demonstrates responsible credit habits. Rule of thumb: keep credit card balances at less than 30% of your credit limit.
Okay, so you don’t have the best credit habits. No worries - they can be learned. Credit card mistakes are costly. But once you know what to do and what not to do, you’re on your way toward better credit.
What foolish credit card moves do you discourage?