When you are charging purchases to a credit card, at some point you will need to pay back what you owe to the credit card company. However, if for one reason or another you do not pay back what you owe to the credit card company then that balance may end up having a negative impact on your credit score. This can in turn keep you from being able to take out bigger loans to do bigger things with. Here are 5 things to avoid so that your credit card balance may not have a negative impact on your credit score.
One of the most obvious things you may want to avoid to make sure that your credit card balance does not have a negative impact on your credit score is to not pay that balance. In time this may completely ruin your credit score and you may be hard pressed to find any institution that would be willing to give you a significant sum of money in a loan. Your best option when spending any money via credit card may be to pay that balance in full every month when you get your monthly bill in the mail from the credit card company.
However, if that is not possible, then you will at least want to if possible pay more than what they ask for from you as a minimum payment. The extra money you pay will be taken off the principal sum and will lower the amount of interest you have to pay.
Maxing Out Your Credit Card(s)
Maxing out your credit cards may not be a very wise thing to do when trying to maintain positive credit health. The reason for this is maxing out a credit card will end up resulting in a high credit utilization ratio. A credit utilization ratio is a measure of the amount of money that you presently owe on all of your revolving accounts, which includes credit cards, compared with your current total available credit — which is then expressed as a percentage.
When you max out a credit card, the utilization for said card is put up to 100%. Most financial experts will highly recommend that you keep it below 30%, as anything above that will end up hurting your credit score and will give you an extra hard time getting the credit you might need down the line on good terms. However, most financial experts will advise you to have your utilization ratio under 10%.
Furthermore, maxing out your credit card could also result in your account getting closed and/or you getting hit with a steep penalty rate. That being said, maxing out your credit card is definitely something you may want to avoid doing at almost any cost.
Not budgeting can be rather detrimental to your financial well-being. If you do not budget out your income to go where it needs to go each month, it could end up leaving you with not enough money to pay off the balance you currently have on your credit card. This in turn could start damaging your credit score, as unpaid debt will tend to do.
This kind of poor planning (or rather lack of planning altogether) will also make you look like more of a risk to companies or banks who would potentially give you bigger loans, as they may not feel safe lending significant amounts of their money to someone who is not responsible enough to make sure they have a plan to repay any debt they take out when it needs to be.
Not Paying on Time
Not paying off your credit card balance on time can also have a seriously negative impact on your credit score. The longer you wait to pay off what you owe to a credit card company, the lower your credit score may become. In addition to that, the late fees may also pile up. A typical late fee is around $20-$30. This may not seem like a whole lot of money to you at first, but over time this can add up and make what might have been only a mole hill of debt into a rather gigantic and intimidating mountain.
Purposefully Carrying a Credit Card Balance
Some times people will tell you that it is a good idea to not pay off your entire credit card bill right away, as it will help you to improve your credit score. It may better to pay off the bill on time and in full if you can. Having a high balance that you carry from month to month could possibly make you look irresponsible to many lenders.