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7 Ways You’re Using Your Credit Card Wrong (And Right)

Credit cards are a staple in most wallets. You probably use them to buy plane tickets, groceries, gas, clothes and everything in between. Besides your big and small daily purchases, you might also use credit cards to build your credit score and earn rewards. But are you actually building your credit and taking advantage of those rewards?

Too many credit card users unintentionally misuse their credit cards. Do you? Here’s how you could be using your credit cards wrong—and how you can start using them right.

#1: Carrying over a Balance Each Month Because You Think It Helps Your Credit Score

Some people don’t pay off their monthly credit bill in full because they think carrying over a balance helps their credit score. If you’ve heard this, you’ve heard wrong. The only thing carrying over a balance does is make you pay more interest. Simply having a credit card in your name is what helps build your credit.

#2: Paying After Each Transaction

Paying towards your credit card bill once a month is enough. If you pay right after each transaction, you may not be helping your credit at all. Doing so could show credit bureaus that you aren’t using credit. They’ll likely only see that you have a balance of zero.

Instead, show that you can put expenses on your credit card and then responsibly pay it off once a month. The only time it’s better to pay more than once a month is if you make a really big purchase, like buying new furniture, that puts you over the optimal 10-30% credit ratio of your credit limit.

#3: Not Checking Your Account Each Week

Many credit card holders prefer using their credit card over cash because they don’t have to keep track of paper and emailed receipts for every purchase. They just log into their account to view their transactions. But many people also get into credit card debt because their spendings sneak up on them. You’re more likely to remember that $500 you spent at the auto repair shop, but it’s those small $10-25 purchases that over a month really add up when you don’t keep up on them.

To prevent logging into your account when your bill is due at the end of the month and seeing you’ve racked up $1,000 on your credit card, log on and check your account activity every week.

#4: Neglecting Tools Your Bank or Credit Card Companies Offer

All banks and credit card companies offer some sort of account and money management tools on their website, app or both. Common tools include:

  • Track spending
  • Categorize spending
  • Dispute purchases
  • Report fraud
  • Report a missing card
  • Lock your card
  • Weekly credit score updates.

If you aren’t using these powerful tools, start taking advantage of them now. And if you don’t know what your bank or the credit card company offers, find out today.

#5: Forgetting About Your Rewards

Credit card rewards are why some people choose certain cards, like the Visa Rewards credit card. But according to a recent survey, 31% of credit card users have never redeemed their credit card rewards. Another survey of American adult credit card users showed that 45% of users are confused by credit card rewards, while 24% don’t even know how to redeem their rewards.

Users who benefit the most from their credit cards are those who know how to earn and actually use their rewards. Several cards offer cash back and travel rewards, and if you play your cards right, you could rack up hundreds of dollars and/or thousands of travel miles in credit card rewards from your everyday purchases.

#6: Having a Retail Credit Card with a High Interest Rate

Speaking of rewards, it’s tempting to open a credit card at your favorite retail store. The rewards the cashier tells you about are more than enticing, but really be honest with yourself and do your homework on retail cards before opening one. If you struggle to pay your current credit card bills or just make the minimum payments, a retail card will likely set you up for credit card disaster and debt.

Typically, retail credit cards have higher interest rates than the average credit card. So unless you have good retail shopping self control and make your payments on time each month, stay away from retail cards.

#7: Canceling the Wrong Credit Cards or Doing It for the Wrong Reasons

The average amount of accounts you have open and the total amount of credit you have together contribute to your credit score. Canceling a credit card can cause your credit score to drop. But, it’s smart to cancel a credit card if it’s the main reason you’re in so much debt or if the card has an annual fee and you know you won’t ever use the card again.

If you really want to close a credit card, keep these two things in mind to minimize the damage to your credit score:

  • Account age. The longer you’ve had an account open, the greater hit your credit will take. It’s better to keep an account open that’s been open for 10 years versus one that’s only been open two or three years.
  • Available credit. Credit utilization ratio is important to your credit score. You want a low score, which you can find out by taking how much you currently owe divided by your total credit limit for a card. So if you close a card where you’ve only used $200 of your $1,000 limit but keep one open where you’ve used $2,000 of your $2,500 limit, your credit score will significantly drop.

Another thing to note is that consumer credit cards may close on their own if you haven’t used them for a while, and this type of card can’t charge inactivity fees. So if you want to stop using one, it’s better to just cut it up and leave the account open until the company decides to close the account due to inactivity.

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