3 Simple Ways to Let a Credit Card Ruin Your Credit Score

A major concern for military families is their credit.

Although there are other ways to bolster your credit score, 91 percent of military respondents to a 2010 FINRA Investor Education Foundation study said they had at least one credit card.

When used responsibly, credit cards can help boost your credit score and provide financing breathing room for military families. But misusing credit cards can do the opposite.

Here’s a look at three ways consumers misuse credit cards and wind up damaging their credit reports:

Balances

Unpaid balances hurt the most.

You’ll end up paying needless interest if you keep waiting to pay off the balance in full. The FINRA study reported that 48 percent of military credit card holders made sizable interest payments, paid fees or both. To avoid an outstanding balance that lingers and accrues substantial interest, don’t spend what you know you cannot repay.

If you have a 680 FICO score, a 30-day late payment can knock as much as 80 points off your score.

As important as it is to not max out your credit card, it’s best to not even get close to your credit limit. Ideally, your balance should be no more than 30 percent of your limit. So if your credit limit is $1,000, keep your balance below $300. Breaking that 30 percent mark for an extended period of time can crush your score.

Closing accounts

Once you pay off a card and close the account, the account history is on your credit report for 10 years or less. If you had the credit card for years and kept the balance low without paying any late fees, all of that good history will go away sometime after you close the account. It’s better to keep the account open and not use it so the account history stays on your report.

Never close a credit card that has a balance to be paid. It drops your credit limit to $0, making it look like you maxed out the card.

Applications

Take it easy with applications for credit cards. Too many applications in a short duration causes a dip in your score. Declinations won’t help either, so only apply if you’re likely to get the card. Military families simply need to remember to keep balances low, pay them off quickly and not acquire dozens of cards.

Photo courtesy of Mike Poresky