While credit cards are the best option for a short term financial crunch or as an indicator of economic wealth there are many credit mistakes which not only affect your overall debt, but also your potential for receiving future loans.
While using quite a few cards would mean better credit options for many and with an aim to maintain a good credit score for all of them a few might succeed, for most it would be foolhardy an attempt. It is always better to keep a single credit card if you are not a high-end user and try and pay of all your debts on time which in turn would ensure a better score.
Often there are five key factors which contribute to making a positive or negative credit score.
- Your payment history which is determined by the fact whether you handle all your outstanding payments on time or not
- The total amount owed as well as the debt-to-credit ratio, which allows one to calculate how much you owe with respect to the credit extended to you.
- The time frame for your credits as well as the time you have been maintaining these accounts.
- Newer loan enquiries or additional debt would also go into credit scoring estimates.
The mix of different types of credit and your management of the same is also taken into consideration.
Keeping these in mind remember it is never good to keep a low debt-to-credit ratio that is to utilize your available credit to the maximum extent possible since even though this might help you it could be a bit nerve-racking for your lenders or the credit card issuing corp.
Late payment is for the lenders a sure sign of a defaulter or at least a potential one and it would go into your credit report. Remember it is better to pay off your debts early than to wait for the last day when you might end up missing the deadline. Never ignore your bank statement and avoid delaying interest payments.
Closing off accounts instead of having a beneficial effect as it is normally perceived to be often results in a negative point. This affects our debt-to-credit ratio as it reduces the amount of available credit. It also hurts the prospect of having maintained a long-time report which would have increased your chances of receiving a higher limit next time.
While exceeding your limit might seem necessary at times it should be avoided as this often leaves a bad mark on your report. Instead asking for an increased limit or paying by cash when the limit has been reached is often a safer option.
However, remember one of the golden rules is to choose your card purchases well. People often end up buying more with plastic money since the lure of not having to pay it with cash and it not reflecting on savings accounts immediately is something not that easy to keep aside.
Upon carefully examining your statements you would often find things which you ended up buying out more spontaneously than due to some interest. Avoiding this in itself might ease your burden a lot.