You may be asking yourself: What do people with excellent credit even need credit for, anyway? They’re clearly good with money, can obviously afford to pay with cash, so what gives?
Whether or not you have acceptable credit is something you may not give much thought to….until you’re sitting across from the loan officer. But for those in the elite 720-850 credit score range, they not only know they have good credit and that they can use it as a tool, they’ve likely worked hard to earn that score and keep it high.
So how do they do it? By steering clear of these stupid, and often avoidable, mistakes.
1. Miss credit card payments.
Missing a payment on your credit card or loan will not just put a negative flag on your credit report. Failing to pay a bill (and letting it slide) may result in your credit score getting dinged, and also your interest rate increasing to the penalty rate. And a higher interest rate will only worsen your situation.
Did you miss a payment on your credit card? Call your creditor and explain the situation. If you can make the payment within 30 days of the due date, even if you’re cutting it close, you just might get off scot-free.
Loans are a little different, though. Here’s what to do if you missed a payment on your loan.
2. Make late payments on their bills.
Missing the due date basically looks like you forgot your debt and didn’t bother to make a payment at all. Many times a late payment will result in a penalty charge, and several could even cause a service (like utilities or phone) to be discontinued. Also, some credit cards will increase your interest rate to the penalty rate immediately after you don’t pay on time.
3. Max out all their credit cards.
Having too many credit cards at their maximum contributes to a lower credit score. In fact, using only about 30% of your available credit at any given time is around the optimal usage in the banks’ eyes. (CreditKarma)
Also, having all your cards maxed out should be a major warning sign for you about your behavior with money in general. If you’re maxed out, there’s a greater chance that you’ll spiral into a cycle of not being able to make your payments at all.
4. Juggle their credit card debts.
There are plenty of financial experts out there that tout the power of credit card churning, taking out 5 or more credit cards to shuffle their debts and reap the rewards. But if you actually need credit, leave the churning to the professionals!
Borrowing from Peter to pay Paul is a very dangerous way to manage your debts. This game seems easy at first, but as you rack up more and more debt, it gets harder to keep track of the juggling. And, as the cards creep closer to their limits, the amount of wiggle room gets tighter and tighter until the day comes (and it always does) where you just can’t make it work anymore.
5. Overpay on their loan rates.
People with high credit scores will get better interest rates on their loans, so keeping your credit score healthy is the gift that keeps on giving. When you do go to buy that car or house, you’ll enjoy a lower interest rate, which could save you thousands in the long run!
Also, people with better credit scores not only have access to better rates but they can also benefit from rewards cards. Rewards are considered a perk usually only offered to people with certain higher ratings on their credit bureaus. Get your credit together and you’ll soon reap the rewards with the best of them.
Compare a few of the best rewards cards on our credit cards reviews page. Simply scroll down, and select the rewards you’re interested in.
6.“Borrow” money from their own savings.
This behavior is similar to the juggling act. If you’re constantly “borrowing” from yourself and devising repayment plans, take it as a warning that you’re not living within your means. Taking from your savings regularly actually negates the purpose of “saving,” and can quickly get out of hand.
If you’ve built an emergency fund, make sure you only use it for emergencies. Job loss, health issues, and unexpected car repairs are all emergencies that warrant dipping into your savings. Otherwise, don’t touch!
7. “Borrow” money from their credit cards (also known as a cash advance).
Cash advances are not charged the same interest rates as purchases on credit cards. So even if you have an awesome rate on the card in general (I consider anything lower than 10% to be awesome for a credit card), you’re probably still paying 19% or more for the cash advances. Also, most credit cards charge a fee for cash advances (usually 1% to 3% of the amount of the advance).
8. Get new credit cards for the express purpose of doing a balance transfer.
Balance transfer cards come in handy if you’re going to pay down your debt within the 0% APR introductory period. But if you find yourself constantly scoping out the latest low interest credit card just so you can transfer your debts again and again, your credit score is probably sinking. Just like the juggling act, the day comes when this strategy no longer is feasible.
9. Co-sign loans for others.
This lesson is usually learned the hard way. I mean, who doesn’t want to help out a friend or family member if they can? Cosigning for a reliable person seems like a no-risk situation, but life has a cruel way sometimes, and unfortunately stuff happens.
Your credit rating could take a major hit if someone you co-signed for becomes unavailable to make payments on their loan. And really, people with high credit don’t risk their rating to help others. Instead, they lend cash or help coach them to live frugally and save.
10. Have no credit cards at all.
You read that right. Having no credit cards may actually contribute to having a lower credit rating. Some people believe that if you never have a credit card then you can never get a bad credit rating. This is incorrect; the only way to prove to creditors that you are a low risk when it comes to borrowing money is to borrow money from them.
Making bad financial decisions when it comes to credit isn’t smart (duh!) and can come back to haunt you when you need credit most. Don’t be that guy, surprised by a bad credit score because of a few mistakes you let slide. Learn to budget wisely, leave your savings alone, and use credit like the best of the best do–sparingly.
Staff writer Tania Galloway is an average Canadian mom on a mission to help people use their money for good instead of evil. She teaches people to keep consumer debt at bay while investing to grow wealth on her blog Money Gal.