Credit Card Do’s and Dont’s Part 2 (Dont’s)

Credit cards can be some of the most useful financial tools you’ll ever use – IF you use them wisely. Seriously, just think for a moment about the financial power you have at your disposal.

If your credit card gives you a credit limit that’s 4X your monthly income and you’re making $3,500 – you have access to $14,000 at the swipe of a card. And if you’re carrying around several other credit cards with credit lines 3X to 4X your monthly salary, you’re walking around with some serious buying power!

Of course, that “buying power” can easily turn into a financial nightmare if you abuse it by spending like a drunken sailor at Orchard Towers.

Avoid these credit card “dont’s” if you want to steer clear of financial danger:


Before Taking Up a New Credit Card

There are plenty of “don’ts” to consider before taking up a credit card. In fact, some people might even argue that the biggest “don’t” is this – don’t take up a credit card in the first place!

But if you handle your credit card(s) wisely, you’ll find that being a responsible credit card user opens up many financial opportunities (through the building up of credit) that would have been impossible attain without the use of credit!

For example, you can get loans approved faster, borrow larger amounts and receive lower interest rates – which can save you thousands of dollars over the course of time.

Before you fill out that credit card application, make sure you understand all of the “don’ts” you should avoid before applying:

  • Don’t Take the First Credit Card Offer You Receive: It’s very easy to just apply to every credit card that shows interest in having you as a customer, but you’ll need to look past introductory offers such as waived fees, low interest rates or bonus rewards. Check out customer reviews of each credit card you consider and choose one that’s not only well liked by consumers, but offers benefits that you’ll use (ex. if you enjoy travel, get a card with a good air miles programme).
  • Never Apply for Multiple Credit Cards at the Same Time: Applying for multiple credit cards at once might sound like an efficient way to all of the credit cards you’re after, but all it’s really doing is sending a message to the credit bureau that you’re hard up for credit. That’s bad because the credit bureau will ding your credit score a number of points for multiple applications, so make sure you apply one at a time instead.


Using Your Credit Card

Credit cards are as dangerous as they are useful. After all, having the power to use 3X to 4X your monthly income per credit card is a lot of purchasing power to have in your wallet – perhaps too much power for some.

Unfortunately, some people let that buying power get to their heads, leading to huge amounts of credit card debt – debt that has the potential to grow much larger if not paid off fast enough. If you want to avoid such a situation, you’ll want to keep on reading.

Here are some major “don’ts” you’ll need to avoid when it comes to using your credit card(s):

  • Don’t Miss a Payment: Making your credit card payments on time is the fastest way to build up your credit score. But missing a single payment is enough to bring down your score substantially, and it’ll stay on your credit score for years. Automating your payments and setting up bill payment reminders will make it easier for you to make your payments on time.
  • Don’t Carry Over a Large Balance: It’s always better to pay off any credit card balances in full each month for one simple reason – interest. Any time you carry a balance from month to month, you’re paying interest on it. And if you’re paying off a large balance, that accrued interest can balloon your balance, which will make it harder for you to pay off.
  • Don’t Make Just the Minimum Payment: There are two major reasons to avoid paying the bare minimum on your credit card bill. First, the amount of time it will take to pay off the bill can take months to years to pay off (depending on the amount). Second, any balance you carry takes longer to pay off because interest on the balance accrues monthly, making it even harder to pay off large balances.
  • Don’t Go Over Your Credit Limit: Letting your balance balloon through a combination of paying the minimum, letting the interest on your credit card balance grow and using your credit card regularly will max out your credit limit faster than anything. Once that happens, you’ll have no choice but to start paying it off, not to mention the credit bureau will lower you credit score.
  • Don’t Buy Items You Can’t Normally Afford: You’ve probably already heard the term “live within your means” right? Well, that’s especially important when it comes to credit. You might be able to live a high lifestyle for one or two months with credit, but you’ll need to pay it back eventually. And when you do, it might be too much for you to handle.
  • Don’t Use Your Credit Card for Everyday Purchases: It’s one thing to use your credit card for certain purchases that’ll get you discounts such as petrol or airline tickets. But if you use your credit card to pay for everything from clothing to food, that’s a quick way to accumulate credit card debt. So use credit for purchases that net you rewards and your debit card for everything else.
  • Don’t Forget About Your Open Credit Cards: If you can’t keep track of all the credit cards you have, it’s probably good sign that you should cancel a card or two. That’s keeping accounts “unused” accounts open not only will incur an annual fee (a nasty $100 to $300 surprise), but it will also negatively affect your credit score as well if not actively used.


Closing Your Credit Card

Choosing which credit card(s) to close out can have a big impact on your credit rating. Unfortunately, not enough people know that closing out a credit card account requires careful consideration.

Instead, what ends up happening is that people close out credit card accounts that are beneficial to hold onto or have the longest credit history. In both cases, it’s the card holder that loses – and you’ll see why.

Here are some credit card “don’ts” you should know about before closing out that card account:

  • Don’t Close All of Your Credit Card Accounts: Some people make the mistake of closing out off of their credit card accounts because they want to be “free” from credit. That’s a horrible mistake because not only because it will damage your credit score, but because if a financial emergency occurs, you won’t have the temporary “safety net” that a credit card can provide. Before you close out all of your credit card accounts, first ask about having your credit limit reduced instead if you’re worried about having too much “credit”.
  • Don’t Close Out the Credit Card(s) with the Longest Credit History: The credit card(s) you’ve had the longest are critical to your credit score. That’s because the credit card(s with the longest credit history shows creditors that you have years of making monthly payments on time. If you’re going to close out a credit card, go for one that offers the least benefits, has a shorter credit history and has no balance. Remember, any hit to your credit score will affect your loan approval and interest rate, so choose wisely!
  • Don’t Close Out the Credit Card(s) with the Best Benefits: Before you close out a credit card, evaluate whether there’s another card with less of a credit history and benefits that you can close out first. Otherwise, you run the risk of staying stuck with credit cards that offer less than the credit card(s) you just got rid of!