How Bad Are Your Credit Card Mistakes?

Grade yours on a 10-point scale.

Nobody's perfect. When it comes to our financial lives, we've all done things we later regretted -- whether it's getting slapped with a $3 fee for using an out-of-network ATM or going on a Las Vegas bender and losing the house on an overly aggressive poker bet.

The key is to understand the scale of the transgression. With credit card blunders, that's no easy task -- is it worse to take a cash advance or to pay a bill a day or two late? Experts graded a range of credit card mistakes on a scale from 1 (losing a few bucks to a cash machine) to 10 (losing the house). Find out which worry the pros most -- and which may (almost) get a free pass.

Paying LateHow bad is it? 6 The details: Credit card companies are notoriously prickly about late payments -- even a payment that's late by a few minutes can pile up fees, interest charges and other penalties. Depending on how late the payment is, your card issuer may also report the problem to any of the credit bureaus, which can wreak havoc on your credit score. The good news, is that the error may be reversible. You do have the option of giving the credit card company a call and asking them not to report it. If you've generally been an on-time payer, they may waive the fees and not report it.

Paying Only the Minimum on Your CardHow bad is it? 4 The details: Credit card companies love it when you pay off your debt slowly, but you should loathe it. It won't necessarily affect your credit score, but that doesn't mean it's a good practice. Sending in only the minimum payment is definitely going to keep you in debt longer, and you're going to pay a heck of a lot more in interest. You may be paying twice as much -- or more -- as you would by paying in cash.

Buying On a Card Just For RewardsHow bad is it? 1 The details: If you're paying off your balance on time and in full, using your cards to grab extra rewards isn't necessarily a bad plan. You can win the rewards card game if you know how to play. But you do have to know yourself. Because most people spend more when they're paying with plastic than with cash, be cautious and recognize when you're buying something only because plastic makes the purchase painless.

Missing a PaymentHow bad is it? 9 The details: Not only are you going to be slammed with fees, interest charges and other penalties when you miss a payment, but you'll likely see a rise in your interest rates. If that weren't bad enough, you'll also have to contend with a significant hit to your credit report -- about 35 percent of your credit score is based on your ability to pay bills on time. As a result, you'll pay more when you try to get a loan. Missing a payment has both immediate and long-term consequences. You may be dealing with the fallout for years.

Having Too Many CardsHow bad is it? 6 The details: If you're the type to apply for a card just so you can grab a discount on clothes or other merchandise, you likely have a huge stack of cards in your purse or wallet. You're probably not getting enough value from the card to make it worth the high interest rates or additional complications from additional bills and junk cluttering your mailbox -- and you're increasing the likelihood that a payment slips through the cracks or that you'll be a victim of identity theft. There's rarely a good reason to get a new card if you've already got a general-purpose card, a rewards card and a low interest card.

Maxing Out a CardHow bad is it? 7 The details: Maxing out a card can have a serious impact on your credit score, since about 30 percent of your score is based on "credit utilization" -- the amount of credit you've used relative to the amount you have available. More important is the fact that it likely signifies a distressing trend in your personal finances. Maxing out a card may not have an immediate financial pull, but it's a sign that you're not budgeting or spending your money wisely. It means you don't have enough saved up to cover unexpected expenses.

Playing the Balance Transfer GameHow bad is it? 5 The details: Moving your debt from a high-interest card to a low-interest card with a balance transfer isn't as smart a move as you think. About 15 percent of your credit score is affected by your recent credit applications. Pile up a few transfers and your score will take a hit. Credit bureaus don't (differentiate) that these cards are for the same [debt], they just see it as you getting pre-approved for more and more credit. Add in the fees that generally accompany balance transfers and you're not gaming the system -- you're getting hammered by it.

Debt Settlement PlansHow bad is it? 9.5 The details: If you're overwhelmed by debt, negotiating down your balance with the credit card company (also called debt settlement) sometimes helps you pay pennies on the dollar on your debt -- but you'll pay a steep price. First, there's the tax hit you'll take for the amount of debt that's forgiven -- it will count as income during that tax year. And your credit score will be decimated, so don't expect you'll be able to take out a loan soon after consolidation. Next to bankruptcy, debt settlement is the most negative thing you can do to your credit score.

Getting a Cash Advance?How bad is it? 8 The details: It may feel like free money, but the truth is that it's anything but: You'll likely have a fee associated with the advance, and you'll likely pay a higher interest rate than you would by using the card associated with it. You also have no grace period. You'll start accruing interest from the moment you get the money. While these are all dangerous attributes in and of themselves, they're not the worst part. When you start using cash advances, you have to understand why you're using them as they're likely symptomatic of a deep financial problem.

Using a Card in a PinchHow bad is it? 2 The details: If the fridge went on the fritz or the furnace conked out in mid-January, you might not have the means to fund its immediate replacement. Putting the bill on a credit card -- and paying it off quickly over the course of a few months -- is a pretty solid option. You don't want something like that to become standard operating procedure. But it's OK to have a balance on a card for a few months when you're going through a rough patch in your financial life. Just make sure it's on a card without an annual fee or with a very low annual fee.

To your good credit,

Mike

5 Steps to a Credit Makeover

See how much money you can save just by following these tips for raising your credit score.

Payment History

• Pay your bills on time to avoid late payments and collections that can have a major negative impact on your FICO score.
• If you have missed payments, get current and stay current.Be aware that paying off a collection account will not automatically remove it from your credit report. Consider hiring a professional as these can stay on your report for seven years.
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit repair advisor.

Credit Cards

• Keep balances low in relation to credit limits on credit cards and other "revolving credit".
• Pay off debt rather than moving it around. The most effective way to improve your credit score in this area is by improving your Credit Utilization Ratio.
• Don't close unused credit cards, as a short-term strategy to raise your score. Make small purchases and pay off the balance.
• Don't open a number of new credit cards that you don't need, just to increase your available credit. This approach could backfire and actually lower your credit score.

Credit History

• If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.
• New accounts will lower your average account age, which will have a larger effect on your score than if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

New Credit

• Do your rate shopping for a given loan within a focused period of time. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
  Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your credit score in the long term.
• Note that it's OK to request and check your own credit report. This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Types of Credit

• Apply for and open new credit accounts only as needed. Don't open accounts just to have a better credit mix - it probably won't raise your credit score.
  Having credit cards and installment loans (and making timely payments) will raise your credit score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
• Note that closing an account doesn't make it go away. A closed account will still show up on your credit report, and may be considered by the score.

If you have any questions about how to get the highest credit score possible, call me at (702) 275-5001 for a free consultation or visit www.nationalcreditrepairalliance.com

To your good credit,

Mike

Announcing National Credit Repair Alliance

Hello everybody,

My name is Mike Newman, and I would like to announce the formation of the National Credit Repair Alliance.

In the coming days we'll be adding lots of information about credit repair to this blog, launching our new website at http://www.nationalcreditrepairalliance.com and creating social media pages to help consumers raise their credit scores.

It's an exciting time for us, and I hope a valuable service for you.

Mike