6 ‘Good’ Credit Card Moves That Are Actually Terrible
Time to Reevaluate
6 ‘Good’ Credit Card Moves That Are Actually Terrible . DailyWorth By Nancy Mann Jackson
Credit cards can cause problems for those who overcharge and can’t pay their bills on time, but they can also be valuable tools for building credit history and reaping rewards. But to maximize credit cards as a valuable financial tool, you must use them correctly. Unfortunately, many people believe they’re making smart moves with their credit cards when they’re actually doing the opposite. Here are six credit card moves that conventional wisdom might have told you were smart — but aren’t.
Canceling Your Credit Cards
It may seem like a good idea to cancel your credit cards so you’ll no longer be tempted rack up debt. While it’s smart to curtail your use, canceling them is a bad idea. Credit score calculations are largely based on credit utilization, or the amount of debt you owe compared to the amount of credit available to you. When you cancel a credit card, you suddenly have less available credit, which “can increase your debt-to-credit ratio for a given amount of debt,” says Jason Steele, credit expert and contributing writer for CompareCards.
Having Only One Credit Card
If you have only one credit card, it may be simple to manage your finances and avoid too much debt. But if you’re hoping to use that credit card to build a viable credit history — which will be needed if you ever want to obtain a mortgage to buy a house, for instance — that’s not going to work.
Never Using Your Credit Cards
Similarly, if you have a credit card but never use it, you may be covered for emergencies, but you’re still not building a valuable credit history. “Some people assume that just having a credit card helps build credit, but that simply isn't the case,” says Barry Choi, personal finance expert at MoneyWeHave.com. “Lenders want to see that you're using your credit card responsibly, and that means making transactions and paying your bills on time. Applying for a card and then never using it will not help you build your credit.”
Opening Too Many Cards at Once
So maybe you want to build your credit quickly, but opening a bunch of cards all within a few weeks’ or months’ time is not the best way to do that. “When you apply for any form of credit, you go through a credit check process,” Choi says. “This is like a small inquiry by the lenders to make sure you have a good credit history. Applying for a ton of new cards is usually a flag for lenders, so it'll appear like you're looking to access a lot of money fast, plus your overall credit score could take a big hit in a short time.”
Having a Low Credit Limit
It may seem like having a low limit on your credit card is positive because it will keep you from overspending on that card. But that’s not necessarily the case.
Carrying a Balance to ‘Build’ Your Credit
Many consumers avoid paying off their credit cards in full, believing that they must carry a balance on their credit cards to build credit. But that’s a “huge misconception,” Choi says.