A high utilization ratio can harm your credit score, which impacts your ability to secure loans on favorable terms. It also means you have less credit available for emergencies. High utilization ratios may also indicate some deeper financial difficulties. If yours is creeping up, it may be time to do some serious budgeting.
There is no hard-and-fast rule, but many personal finance experts advise consumers to keep their utilization ratio below 30 percent.
4. You don’t read your statement. With more banks pushing us toward paperless billing and automatic bill pay services, it’s getting easier to skip looking over the monthly statement. The first danger here is that you may overlook erroneous charges and pay for products and services you haven’t actually bought. You may even miss that you have been a victim of identity theft or other forms of credit fraud.
A more subtle danger associated with ignoring the monthly credit card statement is personal finance complacency. When we don’t review and monitor our spending, we stop being in command of our finances, making it that much more difficult to reach our personal finance goals, whatever they may be.
Set aside a few moments every month to review your statements, whether paper or digital, and make it part of a monthly budget review routine.
5. You haven’t read the fine print. Do you know how your credit card issuer calculates and applies interest? Do you know what the fees are for late fees or credit limit overages? What about fees for cash advances?
Your bank is required by law to make all of that information available to you (and more), in an easy to read and understand format called the “Schumer box,” after Senator Charles Schumer of New York, who championed the law.
Before you apply and sign up for any credit account, make sure you understand the key terms spelled out in the Schumer box.
6. You apply for too many accounts at once. Every time you apply for a credit card you trigger a credit score inquiry. A couple inquiries won’t impact your credit score, but several inquiries in a short period of time will affect your score, although the effect is minor. Experian, one of the big three credit bureaus, notes that while minor score adjustments don’t harm those with good or excellent credit, consumers with weaker scores are at greater risk. Even a modest reduction in score, combined with other risk factors, can make it harder to secure additional credit.
There is an exception: Multiple inquiries made while rate shopping home and auto loans within a 30-day period are treated as a single inquiry.
7. You take cash advances. If you look at the line item for cash advances on your Schumer box, you may be stunned by the interest rate your bank charges. A May CreditCards.com survey found that the average for cash advances is 23.53 percent — or 8.54 percent higher than the average rate for purchases. Some banks even charge as much as 36 percent for cash advances! But the dangers of cash advances mount. Unlike charges for purchases, most banks begin applying interest the moment the advance is taken — and this is on top of the 5 percent fee most charge to execute the advance.
Needless to say, consumers are wise to avoid cash advances, lest they find themselves caught on a never-ending debt treadmill.