Having credit cards and using them frequently are two steps toward having great credit. However, making one of these common mistakes could negatively impact your credit scores.
Making Late Payments
This is probably a “no-brainer” for most people, but if your payment on a credit card is more than 30 days past due, it becomes a negative on your credit report and will instantly lower your scores. And if that weren’t enough, you’ll face fees and probably an interest rate increase from your credit card issuer as well.
Maxing Out Your Credit Limit
When you max out your credit limit, the credit bureaus will consider you to be a higher risk, thereby decreasing your scores. Try not to let your balances on credit cards get any higher than 35-40% of your total limit on the card.
Applying for Too Many Cards at the Same Time
It’s good to have multiple credit cards, but it’s not good to apply for them all at the same time. Doing so implies to the credit bureaus that you are desperate for money and this will typically lower your scores. In addition, multiple inquiries on your credit within a short period of time is another red flag for the credit bureaus.
Canceling a Card With a Long History
Perhaps you have 7-8 credit cards but you primarily only use one or two. So, you think it might be a good idea to simply close the ones that you don’t use. Nope, bad idea and here’s why… those old credit cards, even if you rarely use them, have a strong history and your credit scores LOVE accounts with history. Part of your credit score is based on having accounts with a long, strong history. Therefore, if you close those old cards, you essentially are throwing away that history and you’ll see a drop in your scores as a result.
Only Making the Minimum Payment
Paying only the minimum amount on your card isn’t necessarily bad for your credit, but it can be. There are several reasons for this. First of all, if you continue to use the card and only pay the minimum amount due, your balance will creep higher and higher. This eats into your credit limit and it will eventually lower your scores. Plus, as interest rates continue to go up, that credit card will become harder and harder to pay off. This could leave you in a situation where you have a high balance for an extended period of time. This will definitely cause your scores to take a hit, especially if you do it with more than one card at a time.
Using credit cards is a “must” for having top tier credit, but using them wisely is the key! If you have questions or if you have negative items that need to be removed from your credit report, give us a call and we’ll explain our process and tell you exactly how we can help.