Worst Credit Card Actions You Take
Posted: May 19, 2012

Credit cards are such a common practice now that people forget the reall value and importance of taking care of your credit card debt. Here are a few things that you need to pay attention too when dealing with your credit cards.

Credit Card Bills

It is so easy to let that credit card bill get covered up in a stack of papers and forget to pay it. Once you have uncovered the bill it will probably be past due.

Late payments on your credit card bills, or any other debt, is really bad for your credit rating. Plus, it takes 2 years for those late payments to roll out and quit impacting your credit scores. If you just have one late payment once every blue moon then it won't have that big of an impact on your scores. However, if you are not paying attention then before you know it you will have several late payments racked up in your credit file.

Many people also think that if they haven't made last month's payment and then they send in the next month's payment on time that it will be applied to the current month and not create another late payment. Not true. The payment will be applied to last month's delinquent payment and you will then have a late payment added to your file for the current month. If you don't catch up you will have rolling late payments showing up on your credit report and impacting negatively your credit scores.

In addition to the impact that a late payment has on your credit rating you will be charged late fees and interest which is just a waste of your good hard earned money simply because you are not paying attention.

A late payment may also cause your low-interest credit card to suddenly become a high-interest credit card and then you will be paying out more in interest for months to come.

Just Making The Minimum Payment

Many people are still paying off Christmas for the last two years. Today credit card statements have a statement that shows how much you will pay if you pay only the minimum due. You may be paying for years to come on just a couple of thousand dollars.

If you have an interest rate in the high teens or above then a rough rule of thumb is that you will pay approximately double the cost of an item if you pay it off by just making the minimum payment. Knowing this should encourage you to pay off your balance as soon as you can. Another option, of course, is to save up the money needed to just pay cash for the item in the first place.

Co-signing for a Credit Card

Often parents will co-sign for their young adult child's first credit card with the idea that they are helping them to establish credit.

If you have not taught your child good money management in the past then co-signing for their credit card may be a mistake. If they run up a lot of debt or don't make their payments ontime then it can negatively impact not only your child's credit scores, but yours as well.

The reverse is also true. If adult children co-sign for elderly parents then once again the actions of the parents can impact the credit scores of their child.

Not only may your credit scores be affected but creditors will be looking to the co-signer to pay the unpaid debt of the credit card holder.

Paying One Card With Money From Another Card

Your debt is out of control if you are getting a cash advance from one card in order to make the payment on another credit card.

If you are transferring your balance from a high interest rate card to a lower interest rate card then that can be good for you. But, don't then turn around and run the balance back up on the older card.

Cancelling Cards

Cancelling your credit cards when you have a zero balance may not necessarily be the best thing. For approval on new credit, such as a home mortgage, may require you to have a certain number of open/active lines of credit. If you cancel your credit cards you may be negatively impacting your ability to get that future credit that you want or need.

Also, you could impact your credit scores if you change your debt to credit limit ratio. For instance if you have three credit cards each with a $10,000 credit limit and you owe around $4,500 on one card, $3,000 on another card and $1,500 on the third card. Then you have a 30% debt to credit limit ratio. Let's say you pay off the card with a $1500 balance and cancel that card. When you cancel the card you are also cancelling the available credit of $10,000. This now means your available credit is $20,000 instead of $30,000. Now your combined credit card balances of $4,500 and $3,000 gives you a debt to credit limit ratio is 37.5%. When you debt to credit limit ratio becomes too high then it can negatively impact your credit scores.