Credit card rewards can be tempting, yet costly at the same time. Many people are not aware of this possibility. Most of them only focus on the possible small benefit they can gain. Thus, in order to avoid the cost here are 4 moves that can fail your credit card.
1. Looking for Cashback
According to a survey, nearly 70% of people with credit cards debt are always trying to get cashback and other perks from their cards.
These people usually are aware that they are carrying a balance that cost them interest. The simple math for that is 2% cashback on a 17% interest rate is a losing proposition.
Also read: 6 Basic Mistakes of Using Credit Cards
2. Sticking with One Type of Credit
10% of your score is about the variety of your debt. It is good for someone to have a car loan, a personal loan, a credit card, and a mortgage. Yet, he or she needs to handle them all well. Then, that person will have a higher score than someone who has just had a credit card.
That’s because lenders have more data points to pull from to make their decisions. However, you shouldn’t go out and get a loan you don’t want or need just to bump your score a bit.
Also read: Don’t Use Your Credit Card for These Transactions!
3. Paying Off an Old Debt
When an old, unpaid bill resurfaces, you maybe want to make a partial payment on it.
However, sometimes these debts are already so old they’re not legally enforceable. Besides, once the debt collector makes a record of your active payments, it’s legal in many states for the debt to be treated as new.
Therefore, the easiest thing to do, she said, is to pay off the balance completely.
4. Closing A Line of Credit
After you’ve paid off a credit card, you might want to close the line of credit.
However, you need to keep in mind that doing so will lower your overall credit limit. Consequently, that may increase your utilization rate (how much credit you’re using versus what’s available to you).
Often people with credit scores above 800 commonly maintain a credit ratio below 10%. Thus, to offset the smaller credit limit, you should have a strategy for paying down the remaining balances as quickly as possible. Other than that, you need to also bring the utilization ratio back within an acceptable range.
