So you want to have a credit card in your wallet? It’s a great financial tool to get you what you need, when you need it — all while helping you build up your credit score. But credit cards are only good for you if you vow to use that plastic wisely. If not, you could be in for a world of financial hurt.
Think you’re ready to dive into the word of responsible credit card use? If so, your first job is to swear on whatever you love best to never, ever, commit these seven deadly credit card sins again.
1. Paying Your Bills Late
This can happen to anyone, of course, and everyone makes a mistake now and then. Still, your credit card company is going to give you zero leeway with this — it’s part of how they make their money. A payment that’s even just a day late will earn you a late payment charge, which can start at $27 for your first time and go up from there for additional slip-ups. You’ll also end up paying interest on the past-due amount, so you’ll see a significant jump in your next bill.
The Solution: Set up a reminder on your phone the repeats every month so you can’t forget. Choose the most obnoxious alarm you can and get the payment in the mail — or push the button to pay it online.
2. Skipping a Payment
Even worse, if you have a payment that’s really late — like you forgot it entirely and it goes for 30 days or so — your credit rating is going to take a hit. In general, the longer your account goes unpaid, the bigger the deduction to your FICO score. Make that payment a month late, and your credit score could drop by a full 100 points.
The Solution: Even if you can only manage to pay the minimum, pay it. A partial payment still counts as a payment, so you can avoid all the negative reporting to the credit agencies that come with a missed payment.
3. Getting Slapped With Extra Fees
We’ve already talked about the late fee, but your card may have other hidden fees that you don’t know about until they show up on your card. Many credit cards have a fee for making cash advances or a cash withdrawal from an ATM. You may also have a contract that stipulates charges for foreign transaction and currency conversions.
The Solution: Read the fine print! If you’re planning to travel, check to see if your card is worth taking or if you’ll be swamped with extra charges when you get home. Skip the cash withdrawals, and make sure that you don’t let a card with an annual fee sit around unused — you’ll be wasting your money!
4. Buying Stuff You Don’t Need to Earn Points
If you have a rewards credit card, it can be very tempting to charge as much as you can on it to pump up your points total and get to that Hawaiian getaway a little faster. Credit card companies know this, so they’ll even send you flyers letting you know which categories of spending are up for bonus points this month. That’s cool, but if you’re suddenly eating out seven nights a week to take advantage of dining points, you’re doing it wrong.
The Solution: Use your rewards card for your everyday spending like gas and groceries. These purchases help you build points steadily, since you buy this stuff all the time — but you also know you can pay it off because it’s already in the budget.
5. Not Having a Rewards Card
While it’s sometimes a little too easy to succumb to the siren song of the bonus points, don’t over-correct and swear off rewards cards entirely. If you have a credit score good enough to get you a card with rewards, go for it! These days there’s a card out there for every interest, so you’d be foolish not to take advantage to at least get a little cash back to use to pay for your holiday gifts or something.
The Solution: First, decide what kind of rewards you want. Is it cash back? Free gas? Travel rewards? Once you have a sense of how you’d like to spend your rewards, do a little research to find the best card you qualify for. Then use it just like you would any other credit card, and you’ll be golden.
6. Missing Out on a Signing Bonus
While we’re on the subject of shopping around for a rewards card, did you know that the really good ones offer a signing bonus? Whether it’s straight-up cash or a pile of extra points you can use later, these incentives are worth the effort. Most companies require you to charge a certain amount within the first few months of opening the card to qualify, though.
The Solution: Track your spending to hit the mark. This is a great reason to sign up for online access so you can look at your latest transactions and see how close you are to the total. If the deadline is approaching and you’re not quite there, see if you can pay a utility bill or two with your card to push you across the finish line.
7. Closing Your Old Credit Card Accounts
Keeping a credit card you don’t use and getting charged the annual fee is a mistake, but closing cards without thinking about the impact on your credit score is also a problem. Whenever you close a credit card account, you reduce the total amount of credit you have to your name — and that in turn changes the ratio of debt you owe to the credit you have. This is called your credit utilization rate, and it affects your credit score.
The Solution: Take the time to figure out your ballpark credit utilization rate by adding up your debt on all credit cards and dividing it by the total amount of your credit lines. Your credit utilization rate should be at 30 percent or less. If closing a card knocks that figure out of whack, hold off.
In general, the key to avoiding these deadly credit card mistakes is to pay attention to your spending and pay your card off religiously. When you treat your plastic with the respect it deserves, you’ll be rewarded with a great credit score — and maybe even a dream vacation or two.