10 Credit Missteps That Can Hurt Your Score

Some financial errors are worse than others. While over drafting your spending account may incur a one-time fee, missing a credit card payment can stay on your credit record for years. Find out how to avoid the credit mistakes that can seriously impact your credit score and financial health.

Sometimes making credit mistakes is unavoidable, especially when you’re just learning the ropes in the world of financing. But with a proper understanding of what not to do, you can make better decisions concerning your finances and utilize credit properly. Below, we dive into some of the most common mistakes that hurt your credit score so you can avoid making them twice, or even at all.

Late Payments

While making a late payment is better than making no payment at all, late payments still have consequences.   Some lenders will charge you a late-payment fee, which could actually be more than your minimum payment. Your tardy payment will also show up on your credit report if 30 days late, which could damage your credit score. Consider setting up automatic payments or text and email alerts so that you’re reminded when your payment is due. Payment history, including all delinquent payments, typically accounts for 35% of your FICO® Credit Score1.

Not Understanding the Terms

Read the fine print! Understand all the terms of your credit card, including introductory APR, standard APR, length of introductory period, balance transfer fees, offer limitations, foreign transaction fees and more. Many people are enticed by a low introductory APR and aren’t aware of when this rate expires. Some credit card companies will  send you a reminder that your APR is about to change, while others assume you read the fine print in your offer and aren’t legally required to inform you of the introductory period expiring. Understanding all of your card’s  terms is the foundation for avoiding preventable credit mistakes.

Making the Minimum Payments

Again, while making the minimum payments is better than not making a payment, people often don’t realize how difficult paying off a high-interest credit card can be when they only pay the minimum amount each month. The best strategy is to pay off your balance monthly. If you’ve racked up some debt on your card, try to cut frivolous spending and pay for necessities with your debit card or cash until you can successfully pay down your credit card.

Not Shopping for the Best Deal

One of the biggest mistakes you can make with credit is accepting any and all credit card offers. Easy to get credit cards aren’t always the best credit cards. Oftentimes the cards that have high acceptance rates also have the highest APRs. Look for a card with a low introductory APR but that also has a reasonable standard rate, so you will be able to pay off your monthly balance each month. Also shop for cards that provide rewards, have low or no annual fees and offer additional services such as fraud protection or mobile alerts.

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Applying for Too Many Cards at Once

Thinking that credit cards are a form of supplemental income is a big mistake. While having more than one credit card can increase your credit utilization ratio (your total amount of credit available compared to how much of that available credit you are using), too many cards can be a recipe for debt. If you’re wondering how many credit  cards are too many, keep in mind the more cards you have the harder it is to keep track of all payments. This could even make it easier to miss a payment.

New credit represents approximately 10% of your overall FICO® Credit Score1 and research shows that opening many accounts in a short period of time makes you appear to be a greater risk to credit card companies. Remember that each new application is noted on your credit report every time you’re tempted to sign up for a store card just to save 10% on a purchase.

Not Taking Advantage of Rewards

Many credit cards offer sign-up bonuses and seasonal rotating categories of rewards. Many of these offers require you to sign up to receive them. Discover offers 5% cashback on categories that change each quarter up to the quarterly maximum for cardmembers who sign up for 5%. This is an excellent way to rack up rewards points and cash back on things you’re already purchasing. These incentives are too valuable to ignore, yet many people still do.

Buying Things You Don’t Need

Contrary to popular habits, a credit card should not be used to pay for things you can’t afford. Rather, credit cards should be used to pay for purchases you want rewards on or things that you will be able to pay off each month. A credit card is not free money. A careful examination between needs and wants could deter you from making unnecessary, impulsive purchases.

Maxing Out Your Credit Card

Checking your monthly credit statements can keep you from exceeding your credit limit. Maxing out a credit card is not only embarrassing when your card is rejected at checkout, it can also hurt your credit score by increasing your credit utilization ratio. Having multiple cards at this threshold can compound the issue.

Cash Advances

Though sometimes convenient, your credit card is a dangerous means to obtain cash. You may be subject to cash advance fees and a high interest rate. Instead, withdraw cash from your checking account only and avoid these hefty fees.

Not Taking Your Credit Seriously

The biggest mistake you can make is not taking your credit rating seriously. A good credit rating is essential for making large future purchases like homes or applying for business loans. You should make every effort possible to ensure your credit score is unblemished.

These mistakes, though common, are completely avoidable when you can recognize them. By forming better habits surrounding your credit, you can guarantee that you are making the best decisions concerning your finances.

References:

http://www.myficcom/crediteducation/whatsinyourscore.aspx

http://www.myfico.com/Policy/TermsOfUse.aspx

General Resources:

http://blog.credicom/2014/11/the-worst-credit-card-mistakes-you-can-make-102276/

http://crediabout.com/od/usingcreditcards/tp/worst-credit-card-mistakes.htm

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice.

FICO is a registered trademark of the Fair Isaac Corporation in the United States and other countries.

Discover Financial Services and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Discover Financial Services and Fair Isaac do not provide “credit repair” services or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. 

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