So you are keeping your credit card balances down and probably feel pretty good about your credit situation but are you doing everything correctly. Maybe and maybe not. Here are the biggest mistakes that people tend to make with their cards.
1. Closing A Credit Card
So you struggled for months or even years to pay down that credit card and you finally get it paid off. You never want to get into that position again so the best thing to do is close that card, right? Maybe not.
The only time you should close a credit card is if there were an annual fee. By closing a credit card, you reduce your overall available credit. This could cost you a few points on your score or even dozens of points.
Instead of closing that account, put the card away in a safe place. You could even just cut the physical card up if you like but that might not be the best option. To keep that account open, you probably need to make a small purchase every year. If the account becomes inactive for a long period, your credit card company themselves might close the account.
So, as long as there is no annual fee, keep those accounts open and make one small purchase once a year and pay it off immediately.
2. Carrying Any Balance
People sometimes get the idea that as long as their balance is low, it is okay to carry some credit car debt. They pay the minimum monthly payments on the credit card while contributing to their savings and retirement funds monthly.
The truth is that there is no good amount to carry on your cards. It is good to save but none of your investments are going to negate the 18 percent return that the credit card company is getting from you.
The correct balance to have on your credit card is zero dollars. Even 200 dollars is too much money because it is costing you interest. Get it paid off and then if you make any charges in a month, pay them off immediately during the interest grace period.
3. Not Using Automatic Payments
The only thing worse than high credit card interest is high credit card fees. A late payment fee can easily top $39. That is a big hit for being a few days late.
People have lots of reasons not to sign up for automatic payments. They want to keep control or they intend to pay more, not just the minimum that the auto pay will do.
Nonsense, take advantage of the automatic payment so that you do not forget your payment. Even the most organized bill payer can make a mistake from time to time. If you intend to pay more than the minimum, simply log in and make an additional payment or make your larger payment a few days before the auto pay would have gone through.
4. Closing Your Oldest Credit Line
You already know that closing a credit card can lower your available credit. this can have a big impact on your score.
Another thing that closing a credit card can do is lower your average age of credit. If that credit card was one of your older accounts, closing it will make your credit card profile appear younger and that can also lower your score.
Age of credit is the hardest thing to get because you only get the highest scores when your credit profile exceeds 20 years of age. So, keep those old accounts open.
5. Not Accepting A Credit Line Increase
You might think that a credit line increase is a temptation that you do not need, but yo do. A higher limit will raise your credit score which can save you money in the future on other loan types. Just because you do not feel the need for the extra credit is not a reason to turn it down, you could be hurting your credit score and as you should know, every point counts.
Do keep in mind that a credit line increase is a bit of a trick. Some people tend to only use a portion of their credit available to keep their scores high. A higher limit is an excuse to carry more debt and make the card companies more money. Do not fall for this trick. Accept the extra credit but do not use it.
6. Not Checking Your Accounts
A lot of people will close an account and do the right thing by keeping it open but make another mistake. They do not check their account balance. This could be a huge mistake.
Make it a point to log into your credit card accounts at least once a week to check for any irregular activity. Credit card fraud is rampant and early detection is critical. The credit card companies do a fairly good job at catching it but they are not perfect, you need to do your part.
Have all of your credit accounts bookmarked so that you can quickly check them and look for unexplained activity. It will cost you about five minutes a week and it is well worth your time.
7. Not Taking Advantage Of Cash Back Offers
If you had a bad experience with credit cards, it is perfectly understandable why you may be hesitant to charge anything, especially a large purchase. If you are disciplined though, you are missing out on a golden opportunity, especially on those big ticket items.
If you have cash on hand, why not pay for that 2000 dollar television with your card and then pay it completely off when the statement comes. If you have cash back, you could get an easy $40 back and still not pay a penny of interest.
The credit card companies promote these cash back offers to trick people into charging and carrying a balance. If you have discipline though, you can take these offers and not fall for the trap. It seems a shame not to take free money.