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Five credit mistakes to avoid

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1. Don’t miss a bill payment.

Making late bill payments, or not making them at all, can reflect negatively on your credit. In some cases, there’s a grace period, during which you won’t be penalized. In others, you may get a derogatory mark on your credit report for being 30, 60 or 90 days late. This will negatively affect your percentage of on-time payments, a significant factor of your credit score. If your payment is severely delayed, your debt may be sent to a collections agent, which will be indicated on your credit report.

2. Don’t max out your credit cards.

An important factor of your credit score is your credit utilization rate, or how much of your available credit you’re using at a given moment. When you apply for credit, creditors consider 30% or less a healthy utilization rate; you’re using enough credit to prove you’re responsible, but not so much that you’re relying too heavily on it.

3. Don’t take out cash advances.

Did you know that you can take cash out of the ATM using your credit card? This so-called cash advance is a quick cash loan from your credit card issuer. While convenient, it’s also expensive. You’ll usually pay a fee per cash advance plus an interest rate higher than your credit card’s purchase interest rate by 1 to 7 percentage points. The other problem is that it can hurt your credit, depending on how much you take out. If the outstanding balance on your credit card is already high, taking a cash advance could push your credit utilization rate into territory that is bad for your credit score.

4. Don’t chase rates.

If you have debt, you may be tempted to open a new account with a 0% interest rate (or at least one lower than your current rate) and transfer the balance. The idea here is that you can take that time to pay off the debt without incurring extra interest (or less interest than you would have otherwise). The problem with this can be that you’ll be opening a new account, which is a “hard” inquiry on your credit report, and too many of those can lower your score. Plus, you’ll also get hit with a balance transfer fee, which is usually 3% to 5% of your transfer amount. And, if you don’t pay off the transferred balance during the introductory period, many cards require that you pay the interest rate on the entire transferred amount.

5. Don’t stop using your credit cards.

Some credit card issuers will mark unused cards as “inactive.” While they’ll remain open, the issuer might stop reporting the activity to the credit bureaus, potentially shortening the age of your credit accounts and increasing your credit utilization rate—both of which factor into your credit score.

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