The following is presented for informational purposes only and is not intended as credit repair or credit repair advice.
“You have to use credit to get credit.”
That little financial truism informs a lot of our core money behaviors. We buy things on credit to prove that we can be trusted to buy other, more expensive things on credit. Later, having proven our worthiness, we’re given the opportunity to buy still larger things on credit. And on and on it goes.
Credit cards are a cornerstone of our relationship with credit. What we do with them can have a sizeable impact on our personal finances for years or even decades. That makes credit cards as valuable as they are dangerous, because all it takes are a few bad moves to cripple yourself financially. And where bad credit moves are concerned, these are some of the worst:
Nothing hurts your credit score faster than a missed payment. Every time you miss a payment, your account goes 30 days past due, and that past due mark stays on your credit report for 7 years. Once you start compounding missed payments you run the risk of your account defaulting and going to collections, all of which is unpleasant to experience and terribly damaging to your credit.
Maxing out an account
If you spend too much on a credit card, eventually you’ll run out of available credit. That’s called maxing out your card and it does two things: leaves you without any additional money to borrow (which is very risky if you need your card for emergency spending) and it hurts your credit score. Part of your credit score is based on the percentage of your credit that’s currently being used – when you start maxing out your account and the percentage creeps towards 100 percent, you’re very likely to see your score start to drop.
Going over your limit
Maxing out your credit limit doesn’t mean your balance can’t continue to grow, however. You may not be able to use your card anymore, but if you don’t make adequate payments against the balance, your charges (including interest charges) can push your balance over the limit on the account. Once that happens you’re very likely to be charged an over the limit fee, which certainly won’t help you get your balance back below the limit.
Constantly transferring your balance
Some people like to play credit balance hopscotch, constantly moving old balances onto new cards with nice introductory offers, like no interest charges for the first year. Using a balance transfer can be helpful as part of a repayment strategy. If you’re using it as part of a payment avoidance strategy, however, you need to explore other options.
Opening too many new accounts
Two problems here: having too many open credit card accounts can hurt your credit score, and replacing old accounts with new accounts can also hurt your score. For optimal credit health, you should have approximately three open accounts – the older they are, the better.
Only paying the minimum due
The bigger the balance left over at the end of the month, the larger the interest charge and the faster your debt grows. With significant debts, reaching a payoff while only paying the minimum can sometimes take decades. Your best option is to end the month with no balance at all – just pay off your debt in full, every month.
Cosigning on a card you don’t control
Someone with less than ideal credit (or no credit at all) may someday ask you to cosign on a loan or a credit card application. Kindly, but firmly, say “Noooooooooo!” Cosigning on any credit product makes you responsible for the repayment of that debt. If you cosign something for a child or a relative, you need to stay connected to that debt to make sure it’s being repaid. If it isn’t, your credit could be compromised and you could find yourself on the hook for money you didn’t spend.
Taking out a cash advance
Many credit cards allow you to take a cash advance against your credit limit. Try to avoid this. The rates and terms of the cash advance are usually different (and more severe) than your normal credit terms. There can also be harsh penalties for failing to pay back the advance on time.
Paying for privileges and rewards you don’t use
Some cards go beyond simply loaning you money at a fixed interest rate. Some offer rewards and benefits for using the card. That’s great, but often these cards also come with annual service fees, meaning you’re paying upfront for the right to borrow money you’ll later pay back. If these rewards exceed the value of the fees you’re paying, there’s no problem. If you’re paying more to use the card than you’re getting back in rewards, however, this might not be the right card for you.
Losing your card
Credit card companies try to make it easy to put a hold on your card if it goes missing, but a thief can do a surprising amount of damage in a short amount of time. And although legally you’re usually only liable for the first $50 charged on your stolen card, recovering from any form of identity theft can be difficult, costly, and time-consuming.
Never using your card
As stated above – you have to use credit to get credit. It isn’t enough to simply open a credit card account; you still need to use the card to make occasional purchases. You don’t need to carry a balance and you don’t have to use it every time you make a purchase, but in order to prove your creditworthiness, you do need to use that card from time to time.
Using your credit card to pick a door lock
First of all, this is a lot harder to do than it looks on TV. Second of all, you’ll probably break your credit card. Third of all, if that isn’t your house, why are you trying to pick the lock?!
Sticking your credit card to the refrigerator with a magnet
Now you’re just being silly.