August 23rd, 2011
The 7 Deadly Credit Card Sins
We’ve all committed at least one or two of the following credit card sins. We’re not perfect. Those little rectangles of plastic tucked away in our wallets have helped us build our credit in healthy ways, but they’ve also gotten us into trouble.
When you’re tempted to abuse your credit card, remember the seven deadly credit card sins and keep them at bay with the following tips:
1. Lust: Applying for that awesome rewards card when your credit’s not ready
Why it’s no good: A lust-worthy rewards credit card with great travel perks like double miles on each dollar spent is a tempting, but unless you have an excellent credit score around 720 or higher, it’s difficult to get approved for this card. Applying means your credit score will be hit by a hard inquiry, and if you’re not approved, all you get in return is a few points shaved off of your credit score.
What to do: Use our Approval Odds feature in the credit card reviews section. It will guide you toward cards you’re more likely to be approved for. If most rewards cards are out of your reach, build your credit with your current credit card. Keep an eye on your credit score, and apply when your Approval Odds have improved.
2. Gluttony: Maxing out your credit cards
Why it’s no good: A maxed-out credit card can damage your credit card utilization. Your credit card utilization rate is a large factor in your credit rating, weighing in at about 30% of your score. So, the more you charge, the more you’re at risk of using too much of your available credit and skyrocketing your credit utilization rate. Additionally, your credit card issuer could increase your interest rates due to your risky credit behavior.
What to do: Check your credit card balances frequently and set up email or mobile alerts to tell you when you’ve reached a pre-specified limit on your card. Keep your balances under 30% of your available credit, which is the recommended healthy utilization rate.
3. Greed: Applying for too many credit cards at once
Why it’s no good: First, your credit score will be hit with a hard inquiry for each application. Second, lenders may consider you a credit risk because you’ll appear desperate for access to credit.
What to do: Do your research, and only apply for the cards you’re really interested in. Use Credit Karma’s credit card reviews to find out which credit cards come most highly recommended by consumers.
4. Sloth: Putting off your credit card payment
Why it’s no good: Delaying your credit card payment might land you with a late payment, which can severely damage your credit score and cost you a late fee upwards of $35. Your debt repayment history accounts for about 35% of your credit score.
What to do: Put it on your calendar. Whether you use Outlook, Google Calendar or something else, make an “appointment” with your credit card payment. Make sure it’s scheduled a few days before the payment is due to give yourself time to get it done.
5. Wrath: Canceling all of your credit cards
Why it’s no good: If you’ve had difficulty managing your credit, don’t go closing old accounts. It can have a negative impact on the length of your credit history. Your credit history makes up about 15% of your credit score. Additionally, closing all of your credit card accounts will negatively impact the variety of credit you have, which accounts for 10% of your credit score.
What to do: Instead, reevaluate your spending habits. Use a tool like LearnVest’s new My Money Center to keep track of your spending, maintain a budget and take control of your credit life.
6. Envy: Using your credit card to keep up with the Joneses
Why it’s no good: Just because it seems like everyone has a new iPad, it doesn’t mean you need to buy one by charging it on your credit card. This is especially true if you’re unable to pay off the balance at the end of the month.
What to do: Put aside some cash each month for that big-ticket item. Use an online savings account like Smartypig or ING. Set up automatic withdrawals to reach your goal quickly. Who knows; by the time you have the cash saved, you may decide you no longer “need” that iPad.
7. Pride: Not asking for help
Why it’s no good: Whether you have a complaint about a credit card or need help consolidating your credit card debt repayment, you can always ask for help. Otherwise, you could find yourself drowning in debt with no recourse. Check out our Community Karma post on Kelly, whose story shows the benefit of asking for help with credit card debt. She swallowed her pride to get help and is now well on her way to being credit card-debt free.
What to do: For general advice, check out our Credit Advice center. If you’re in need of credit counseling, use the NFCC’s toll-free number (1-800-388-2227) to be connected with a local nonprofit credit counseling agency. Taking the step to ask for help is the first toward getting your credit health back on track.
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Great post! Very creative. These are all true and I know many credit card users fall victim to at least one of these. Perhaps the worst sin is “pride” because there are so many resources out there that consumers can turn to for help before they really get in trouble!
Cancelling cards – a different opinion:
Over the last few years, banks have been reducing their exposure by telling customers they were bad credit risks and drastically cutting limits. I had 13 premium cards, all with 20 to 30 year histories, very low permanent rates, and $200,000 aggregate credit limit. My score was very high and I have a life-long perfect payment history. Big banks started cutting my limits so low that they were unusable and young phone clerks were telling me they were very concerned that I will not be able to make my payments. A Wells clerk even insisted that it was the TransUnion report telling them I will have problems paying. They do not seem to understand that credit reports do not contain any income and net worth information, and it is the banks responsibility to make the final determination about a customer’s financial condition. During each of those calls, I would soon stop arguing with them and just cancel the card. If banks cannot stand by even their good customers, we as customers should not stay with them! I cancelled 10 very old cards out of 13 and eliminated $160,000 out of my $200,000 credit limits. It seriously trashed my utilization percentage and score. The “experts” would say my actions were self-destructive and unwise. Certainly counter to the advice on this site! But, I had just purchased a home I expected to stay in long-term and I did not plan any more large purchases for quite a while. A gamble that I would not need the high credit score for a couple years. Yes, I know – my situation is not typical. But, I would have taken the same action regardless. I would not suggest most people cancel old cards. For me, making the statement to banks such as BofA, Wells, and Chase was well worth the large drop in my score! I have had discussions with several branch managers. Some I had known for years. Even when they have tried to intervene, they end up telling me that the credit card side is independent of the branch business and they are unable to over-ride the decisions made by credit card clerks. My position with them is that I needed a whole bank, not just half a bank. I closed several checking and savings accounts after cancelling the cards. Over 3 years, I have weeded out the disloyal banks and stayed with the loyal (a credit union, Citi, and Capital One). I frequently check my score through Credit karma and it is finally starting to recover.
Thanks for your insight, Robert. Your story certainly is one that needs to be heard, even if it is possibly the exception. I think all of these credit card “sins” should be examined on a case-by-case basis, as evidenced by your experience. I’m happy to hear your credit is finally bouncing back after all that hassle. Keep it up, and definitely keep an eye on those limits!