If you’ve been using credit cards for a while, you probably think you know everything there is to know about how to use them. But many people make amateur mistakes when it comes to credit. Here are three that you could be making, too.
Using too much of your credit line. You probably know that it’s not good to “max out” your credit card, or charge it up all the way to the credit limit. You risk overcharging it and either having it declined, or getting slapped with an over-the-limit fee when you do that. But you may not know that ideally, you should keep your balance under 10% of your credit limit. That’s right – under 10%. Keep in mind, that’s the limit on revolving debt you want to keep on your card; if you charge it up to 50%, or even 99%, of your limit and then pay it off before the grace period is up, that’s fine. But the balance that you roll over each month—while still paying the minimum payment due, of course—should really be less than 10% of your available credit. Also keep in mind that you can spread this amount over all your cards. Add up your available credit on each credit card in your name; then add up your revolving debt on each card. That’s your debt-to-credit ratio. If you’ve got revolving debt that you can’t pay off right away, it’s best to put it on one card with a balance transfer offer. Don’t use that card for purchases; just use it to chip away at your debt. Use another card for everyday purchases.
Closing your account. Sometimes when people have been paying off debt, they think it’s a good idea to close the account once they’ve finally paid the card down to $0. It can feel like good financial housekeeping to do this—like taking out the trash once you’ve cleaned the house. But this is actually the completely wrong mindset. One of the factors in determining your credit history is how long you’ve had each of your accounts open. If you’ve been paying off debt, chances are you’ve had that card for a while. Don’t throw away your long credit history by closing the account; keep it open and use it responsibly. The same goes for store credit cards or other cards you may not use very often and are thinking of cancelling. The longer you have your account open, the better it is for your credit score. So use those accounts once in a while and keep them active. Your credit score will thank you.
Applying for too much credit in too short of time. Having more than one credit card is great. There are so many reasons to carry several credit cards, from more rewards to coverage in case of emergencies to flexibility in payment choices. However, don’t apply for too many cards in a short amount of time. Every time you apply for a credit card, there’s a hard inquiry on your credit report. That can bring your score down a few points. So take it easy and go slow. Apply for one card at a time, with some time between each, and make sure you’re keeping current with all your payments. If you’re not in debt and your credit is good, there’s no reason not to apply for more than one new credit card—just don’t do it all in the same month (or two, or even three).