Your 30th birthday is fast approaching. There’s no denying it now: You’re an adult. But when it comes to those credit cards in your wallet, are you still acting like a kid?
Credit cards are an important financial tool. When you use them properly, they can help you build your credit score and even rack up useful rewards. But if you misuse your cards, you’ll wind up facing a growing mountain of high-interest debt — one that only grows as you move past your 30s.
You need to stop making these credit card mistakes by the time you’re 30. If you do, you might be surprised at how much better your financial health gets as you grow older.
1. Making only the minimum payments
The problem with credit card debt is the high interest rates. The debt grows quickly, especially if you carry a large balance from month to month. And if you only make the minimum required monthly payment, it can take you years to pay off your credit card debt.
Say you have $6,000 in credit card debt at an interest rate of 18 percent. If you only make your minimum payment (usually calculated at 3 percent payment — or even less — of your balance) each month, it will take you 210 months, or more than 17 years, to pay it off. You’ll also pay more than $5,600 in interest on that debt. And those figures will be even worse if you continue to add to your debt while you’re making those minimum payments.
The lesson is clear: Pay more than the minimum, each month, until that debt is paid off. (See also: All the Ways Minimum Payments Are Evil)
2. Paying late
Paying your credit card bill late can have a devastating impact on your credit score. One late payment can send your score tumbling by 100 points. Your late payment will also remain on your credit reports for seven years.
Fortunately, a payment won’t be listed as officially late for credit score purposes until it is 30 days past due. But the card company will still probably charge you a late fee of $27 or more. If you’re a couple of weeks late, make that payment immediately. (See also: 5 Simple Ways to Never Make a Late Credit Card Payment)
3. Not paying at all
Your credit card debt might be so overwhelming that you decide to stop paying on it completely. This is a big mistake. If you miss your credit card payments for six months, your credit card company will issue what is known as a charge-off; a declaration that the institution considers your credit card debt a loss on its balance sheet. By the time your credit card account gets to this point, your creditor will have probably shut it off, meaning that you won’t be able to use your card for future purchases.
This doesn’t mean that your credit card issuer won’t try to get you to pay up. You are still responsible for paying off your credit card debt. You might now, though, have to deal with a collections agency. (See also: Account in Collections? Here’s How to Fix It)
A charge-off will show up in your credit reports for seven years. It will also seriously weaken your credit score. If you are struggling to pay even your minimum monthly payment, don’t ignore the problem, or your bill. Instead, call your credit card company. Your creditor might be able to come up with a solution that lets you stay current on your payments.
4. Not reading your credit card statements
As more of us pay our credit card bills online, it can be easy to ignore the monthly statements that come with them. This, though, can be a costly mistake. What if someone has been making fraudulent purchases with your card? You’ll never know if you don’t read the statement.
Yes, it can be boring. But take time to read your statements — even if you no longer receive paper versions — before you make your credit card payments. If you do find suspicious transactions, call your credit card company immediately.
5. Closing unused cards
You might think it makes good financial sense to close a credit card account that you rarely use. But doing this can hurt your credit score because of something called your credit utilization ratio.
This ratio measures how much of your available credit you are using. The higher your ratio, the more of a negative impact it has on your credit score.
Say you have $12,000 of available credit and you owe a total of $5,000 on your cards. You are using about 42 percent of your total available credit. Now say you close a card with a credit limit of $2,000. You just lowered your overall available credit limit. You are now using up $5,000 of $10,000 in available credit, which will have boosted your credit-utilization ratio from 42 percent to 50 percent without making a single purchase. (See also: This One Ratio Is the Key to a Good Credit Score)
Keep those credit card accounts open, even if you don’t plan on using all of them. You want your credit utilization ratio to be as low as possible.