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Credit card usage - 6 Wrong ways to use them

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By: Good Nelly
on 28th Apr,2015

They rarely know the importance of credit history in their lives. Even if you qualify, you might have to pay higher interest on the loan amount.
Credit card usage - 6 Wrong ways to use them


Several researches reveal that 40% people have very little idea regarding credit history. They rarely know the importance of credit history in their lives. But, with a low score, there are chances that you'll not qualify for a loan. Even if you qualify, you might have to pay higher interest on the loan amount.

Studies also show that about 1 in 4 people don't know the proper way to use credit cards so as to improve credit scores. More shocking fact is that about 60-65% don't even use a credit card. In the year 2014, average credit card debt per person, including zero-balance cards, was around $4500-5000. And, total outstanding revolving debt was about 880 billion in August 2014.

Go through this article and check out how many of these practices you follow.

1. You are making only the minimum payments on your cards

It is one of the best ways to hurt your credit score. If you follow this strategy, then in no time, your credit score will surely go low. This is because, 30% of your FICO score consists of how much balance you're carrying on your card. Moreover, the utilization rate needs to be 30% or less. So, if you carry a good balance on your card and your available credit limit is low, it will hurt your score.

2. You open a credit card whenever you feel like

Before applying for several credit cards at once, ask yourself, will you be able to manage them? Can you repay the outstanding balance on all cards, every month? Failing to do so will hurt your credit score. Applying for a new credit card will also have a hard inquiry on your credit report. So, having a number of queries will hurt your score. Managing too many credit cards is also not very easy. There are chances that you'll miss the payments on some cards every month.

3. You want to close your oldest credit account since you don't use it much

When you close your old credit accounts, the length of your credit history shortens. As a result, it may reduce your score. This is because, 15% of your FICO credit score is based on the length of your credit history. So, you should close your credit card(s) properly.

4. You do not pay heed to your credit card bills

The FICO credit scoring model analyzes your bill payment history to compute your score. So, if you ignore your credit card bills and miss payments, then it will hurt your score. As a result, chances will be low to qualify for new credit. You should also know that a negative item will stay on your credit report for 7 years.

5. You've decided to repay lowest rate card, since it's easier to pay off

If you decide to repay the lowest interest credit card, then it'll be easier for you to do so. But, you might end up paying more on your high interest cards. The longer you take to repay your high interest cards, the more you'll pay towards interest.

6. You do not monitor your credit reports at regular intervals

If you don't monitor your credit reports, you'll not know about inaccurate items in your credit report, if any. Identity theft is also on rise. So, you'll never come to know of any unusual activity on your cards. In turn, these factors can reduce your credit score.

So, it can be concluded by saying that if you follow these practices, you'll ultimately ruin your credit score. Even if you follow one of the above-mentioned factors, it can be harmful for your credit report and score.

If you don't want to do that, then follow these tips:

1. You are making only the minimum payments on your cards

Remedy: Try to pay off the entire balance on your credit card at every billing cycle. Doing so, you can show your creditworthiness to your future creditors. That is, you can manage your credit efficiently.

2. You open a credit card whenever you feel like

Remedy: It's simple. Do not open too many credit cards so that you can manage them efficiently. And, if you can manage several credit cards, do not take out all of them at once.

3. You want to close your oldest credit account since you don't use it much

Remedy: If you are paying high annual fee on your oldest credit card, then it makes sense to close the account. However, if it's not so, then it's better to not close your oldest credit card accounts. If you have negative items on credit report, then having an old card is good. It will add some positive points towards your credit score calculation. It makes sense, isn't it?

4. You do not pay heed to your credit card bills

Remedy: Set a particular day each week to pay the bills which are due the next week. Make sure you check the due dates of your bills every week, so that every due payment is made.

5. You've decided to repay lowest rate card, since it's easier to pay off

Remedy: It is advisable to repay your high interest credit card first. It'll help you save money in the long run. However, if you want to stay motivated, then split the amount which you use towards paying off your credit cards. Use a certain amount to repay your lowest rate card and the remaining amount to repay the high interest card. This way you can stay motivated as you can repay the low interest card fast. And, you also work towards reducing the balance on your high interest card. So, you'd relatively pay less on the interest in the long run.

6. You do not monitor your credit reports at regular intervals

Remedy: You should order and monitor your credit reports at regular intervals. Doing so, you'll be able to dispute any inaccurate items in your report. It will help you increase your credit score.

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