It’s difficult to overstate how important your credit record and credit score are. Not only will good credit enable you be approved for the most attractive credit cards, it’s vital for receiving the lowest rates on a car loan, a mortgage, and on home and auto insurance premiums. It can even make the difference in whether you get the apartment or job you want, since both landlords and employers often run credit checks on applicants. (See also: 15 Surprising Ways Bad Credit Can Hurt You)
Unfortunately, many credit card users are making big mistakes that are ruining their credit. Since it can take years for some of the most negative items to drop off your credit report, it’s crucial to avoid making these mistakes in the first place. Here are six credit card mistakes that could be ruining your credit.
1. Paying Late
The most important factor in your FICO score — the most popular credit score lenders use to evaluate you — is your payment history. It makes up 35% of your score. (See also: 5 Things with the Biggest Impact on Your Credit Score)
If you are using a credit card, your first priority should be to always pay your credit card bill on time. While one bill paid a few days late won’t cause lasting damage to your credit score, paying late frequently will hurt more. On top of that you’ll usually be subject to late fees.
Thankfully, there are many tools to help you pay on time. Most credit card issuers offer automatic payments to ensure that you never pay late. You can also request a specific payment due date so you can arrange all your bills to be due at the same time each month. That way you can sit down and pay bills just once a month rather than keeping track of various bills as they come in. Additionally, you can sign up for payment reminders by email or text.
2. Paying Less Than the Minimum
Paying just the minimum payment on your credit cards will hurt you financially, but paying below that is even worse — much worse.
To avoid being considered delinquent on a credit card account, you not only have to make your payments on time, but the payments must be at least the minimum amount required, which is stated on your bill. If your payment is below the minimum, it doesn’t matter if it was on time. The payment will still be considered late, causing a hit to your credit score.
3. Failing to Pay
Miss a payment for at least 60 days and your creditors start wondering if you’re going to pay at all. That’s why you’ll start to see more serious consequences than a single lapse of a few days would cause. After two missed billing cycles an issuer can impose a high penalty interest rate on the account, on top of late fees. And while those charges alone are costly, your credit will also start to really suffer.
A payment that’s 90 days overdue is extremely damaging to your credit score and takes seven years to fall off your credit record. At 120 days late, your debt will likely be charged off and sold to collectors, which harms your credit score even more. (See also: What to Do If You Can’t Pay Your Bills on Time)
If you are unable to pay your credit card bill for any reason, you should reach out to your card issuer to let them know. You may be able to negotiate a debt repayment plan.
4. Having High Balances
After payment history, the second most important factor in your credit score is how much you owe. It accounts for 30% of your FICO score. Maxing out your credit cards, or coming close to it, hurts your credit score.
Ideally you want your credit utilization ratio — the amount of debt you have divided by your total available credit — to be below 30%. The lower you can get it, the better off your credit score will be. The best way to lower it is to pay off your balances quickly. (See also: 5-Day Debt Reduction Plan: Pay It Off)
5. Not Having Enough Credit Cards
The other way to lower your credit utilization ratio is to increase the amount of available credit you have. If you have just one or two credit cards, and you are using up most of the credit lines available on them, you may benefit from having another card — but only if you can resist the temptation to ring up a bunch more debt on it. Remember, raising your credit line only to add more debt will drop your credit score.
Pick a basic, no-annual-fee card and then use it once a month or so for a small purchase, such as a tank of gas, that you can pay off immediately. That will keep the account active without putting you in debt. (See also: 7 Questions to Ask to Help Choose the Perfect Credit Card)
Similarly, you could request a credit line increase for the accounts you already have. If you’ve been paying on time, chances are you can get a credit limit increase by simply calling your issuer and asking.
Just be aware that credit card issuers will pull your credit report before approving you for a new credit card, and usually for a credit line increase, too. This will result in a hard pull on your credit, which will ding your credit score. Even a few points could be important if you’re about to apply for a mortgage, so wait to ask for new credit until after you’ve done that.
6. Canceling Your Oldest Credit Cards
Closing any credit card will raise your credit utilization ratio, but closing your oldest accounts harms a different part of your credit score. Your length of credit history accounts for 15% of your FICO score. While an account in good standing will remain on your credit report for about 10 years after you’ve closed it, it will eventually be removed and hurt your score. (See also: 5 Times It’s Okay to Close a Credit Card)
If you don’t need to use a card, it may be better to put the card in a secure location, but keep the account open. If the account has an annual fee, you can ask to have the fee waived, or the account changed to a different card without the annual fee.
Don’t let these credit card mistakes ruin your credit. (See also: How to Use Credit Cards to Improve Your Credit Score)