You could be hurting your credit without even realizing it.
1. You avoid credit cards altogether
Eschewing plastic will help keep you out of debt, but it could also keep you from securing a mortgage or a car loan down the road. “Many people, especially millennials, are afraid of going into debt and think credit card companies are just evil big bad wolves,” says Sean McQuay, a credit card expert for NerdWallet. “But really, credit cards give you an opportunity to build credit without making a long-term commitment.” Without any credit history, you’ll have a hard time convincing lenders to approve you for bigger purchases.
2. You don’t know your credit score
How will you know what credit cards you qualify for if you’re not familiar with your credit report and credit score? A full 39 percent of Americans don’t know their current score, according to the 2015 Chase Slate Credit Survey. Being aware of your score before you apply can save you from rejection or even show you if your credit could use improvement, says Farnoosh Torabi, a financial education partner with Chase Slate. Sometimes your bank will tell you your score if you ask and online services like Credit Karma or WalletHub are also available.
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3. You don’t shop around
Consider your credit score, your lifestyle, and how you spend money before you apply for a credit card. Consumers often apply for the wrong one and either get rejected because they don’t qualify, or they end up cancelling the card later on because it’s not a good fit, says McQuay. Both situations can have a negative impact on your credit report. “Not every card is for everyone,” says Torabi. She suggests considering a card with a low APR if you’re going to carry a balance, a card with travel rewards if you’re a frequent flier, or a general cash-back card if you do most of your household shopping.
4. You hoard credit cards
When you do start applying, don’t go overboard. “Having too many cards sometimes leads you to believe your universe is bigger than it is and you can end up deep in debt,” says Adam Levin, a chairman and cofounder of Credit.com and the author of the upcoming book Swiped. “It’s not about the number,” says Torabi. “It’s about how you manage those that you have.” If you have more than you can monitor well, keep a couple in your wallet and the rest in a safe. Swap them out every few months to keep all of your cards active.
5. You close out cards
You may think, “I finally paid off that card so I better close it before I spend money again!” Or, “I haven’t used that card in a while so I might as well cancel it.” Not so fast. Two important factors in your credit score are your utilization rate (your credit card balance divided by your credit card limit) and the average age of your credit accounts. The goal is to have a low utilization rate and a long credit history, but both of those numbers are affected when you close out cards. Instead of cancelling your cards, keep them in a safe and then take each one out every few months to make a few purchases and immediately pay off the balance. “Continue to show there’s spending every now and then and demonstrate that you’re a good steward of your credit so your lender doesn’t close your account,” says Levin.
6. You carry a balance
Many people mistakenly believe that just paying the minimum by the due date and keeping a balance on your card is good for your score, but if you truly want a good score, you need to pay off your balance in full each month. “Your statement may say you only need to pay the minimum, but that will cost you more in interest and it can damage your score,” says Torabi.
7. You make late payments
Missing your due date might seem like a minor infraction, but it can lead to late fees, an interest-rate hike, and even a ding on your credit report. Monitor your spending to ensure you have enough money to cover your balance and set up auto-pay so you never miss a payment. If it’s feasible, McQuay advises that people select “autopay full balance” instead of “autopay minimum” to start fresh each month and avoid paying interest on your charges.
8. You take out cash advances
Never make cash withdrawals from your credit card account. You may assume you can just pay the money back at the end of the month, but interest rates tend to be six to 10 percent higher on cash advances than on purchases, and it usually begins accruing immediately (not at the end of your payment cycle), says McQuay. You’re much better off sticking with your debit card for cash withdrawals.
9. You ignore your lender’s free services
Depending on the card you have, you might be able to get free credit education from your lender. “Banks are becoming more keen on providing this to customers,” says Torabi. Some show you the makeup of your credit score with its strong points and also areas that could use improvement. Call your lender to see if they offer such a program—it doesn’t cost you anything to ask!
10. You give up
When people find out they have a bad mark on their credit history, they often think it’s never going to go away so there’s no point in trying to make it better. “We know that time heals when it comes to credit health,” says Torabi. “Even after a bankruptcy or foreclosure, with good behavior and time, your credit score will inch up.” Talk to your lender or a trusted financial planner to see what steps you can take to repair your credit—and remember that all is not lost.