Charles H. Miller
I guess we all agree that one’s credit score is an important number. You don’t have to obsess over it, but you do need to avoid some mistakes that could ruin you credit score.
If you don’t know what you’re doing or acting irresponsibly, your credit card usage could ruin your credit score. So be careful and avoid these common mistakes that could cost you time and money:
1. Paying Late
It’s kinda obvious but many people don’t pay their bills on time. Yes, this includes even those who can easily afford it. And it’s a shame since the payment history makes up 35 percent of your FICO score — which lenders use to evaluate your creditworthiness.
So, in order keep and even grow your credit score, make sure to always pay your credit card bill on time. It’s that easy.
One bill paid a few days late won’t cause a havoc, but do it a few times in a row and your credit score will suffer. Plus, you will be subject to late fees.
2. Not Paying Enough
And by this we mean paying less than the minimum. That’s a big no-no and will produce a similar effect as when you don’t pay on time.
Even if you’re struggling financially, you should come up with enough money to pay the monthly minimum. Not paying it will not only hurt your credit score, but also incur late payment fees. This is because as far as the bank is concerned, you haven’t paid your dues.
3. Failing to Pay Completely
This is where things get even more complicated as after some time — typically 60 days — your credit card issuer starts to wonder if you’re going to pay at all.
Things are going from bad to worse when you miss two billing cycles, when you may face a high penalty interest rate in addition to late fees. Needless to say, your credit score will tank accordingly.
Your best bet to avoid harsh penalties is to talk to your bank / credit card issuer and see whether you can come up with a plan to repay your debt. Then follow through on that plan.
4. Having High Balances
The first three points were all dealing with payments, but there’s more in the credit score. The second most important number is the credit utilization ratio, and it accounts for 30 percent of your FICO score. It shows how much you owe in relation to total available credit.
Ideally, you want to keep this number below 30 percent, so if your total available credit is $10,000, you shouldn’t have more than $3,000 in debt on any particular credit card.
If you need more money, call your bank and ask for a credit line increase. In most cases, it will work.
5. Having Just One or Two Credit Cards
This is somewhat related to the previous point; if you need more credit and the bank don’t want to increase your credit, get another credit card instead of spending more on one or two cards. This way you can manage your credit utilization ratio by spreading your debt across more cards.
It is important to note that you shouldn’t go crazy once you get another credit card, but be responsible with it. Yes, it is easier said than done, but you gotta try.
You are best off going for a no-annual-fee card that you won’t be using too much. For instance, this could be your card for buying gas or groceries once a month to ensure that the account is live without putting you in extra debt (as long as you can make regular monthly payments, that is).
6. Canceling Your Oldest Credit Card(s)
The length of credit history accounts for 15 percent of your FICO score, so make sure NOT to close your very first credit card that easily. Even if it was/is a crappy card and these days you have something better, make sure to keep it. Credit bureaus love this “long data” as they get to know you better over time.
If you’re no longer using that old credit card, put it in a drawer and use it once a month to keep the account alive. Alternatively, you may ask the bank to replace that card with something better. Just don’t go for a card with a big annual fee you can’t easily handle.
…
To sum it all up, credit cards are great if you use them responsibly. And by that, we mean paying them off as soon as possible, preferably making regular payments in full, with no balance to carry from one month to the other. Otherwise, credit cards could and will ruin your credit.
