Home > Credit 101 > You Can Pay Your Credit Cards & Still Wreck Your Credit

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The most important thing that you need to know about credit cards is that they are not free money. You will receive a bill for your charges, and you will be expected to pay it.

But just because you eventually pay your credit card debt, it doesn’t mean that you will automatically have a good credit history and a strong credit score. In fact, there are several ways you can pay your credit card bill and still see your credit score suffer. Here’s how.

1. If You Skip Payments

It’s better to pay late than never, but missing payments really hurts your credit history and your credit score. The consumer credit bureaus interpret missed payments as a sign that you are either irresponsible with your bills or are experiencing serious financial difficulties. So even if you eventually come up with the money, a record of your missed payments will hurt your credit score for some time.

2. If You Fail to Make the Minimum Payments

Even if you make a payment, you still need to pay at least the minimum amount due. To pay less than the minimum is almost as bad as missing a payment since you have still defaulted on your obligation. On every credit card bill you receive, the card company is required by law to tell you how long it will take you to pay off the debt if you only make the minimum payment. Pay attention to those numbers — they’re meant to inspire you to pay more than the minimum payment. Even paying $5 or $10 more than the minimum now can save you much more down the line.

3. If You Max Them Out

Have you ever heard the saying that banks will only loan money to those who can first prove that they don’t need it? A credit limit amounts to the extension of a loan, and some cardholders are happy to borrow up to that limit. At the same time, those who actually use most of their credit line (or really, more than 30% of it) will still be hurting their credit scores. High credit utilization is another behavior that is viewed as a sign of risk, and credit scores reflect that. Even if you stay within your credit limit and pay your bills on time, using most of your credit line will hurt your credit score.

4. If You Don’t Expand Your Credit Horizons

Some people see a credit card, or any other type of loan, as a bad idea. Those who believe this may have just a single credit card with a small limit, and never take out other types of loans. Because they have limited opportunities to get into debt, this can feel like a conservative and responsible way to manage their credit, but it will not result in a high credit score for several reasons. (So, full disclosure, this won’t wreck your credit, it will just hold you back from a great credit score.)

First, these cardholders will be building very little credit history so there won’t build much of a record of on-time payments, and their credit report won’t include accounts that have aged. And by avoiding other types of loans, they will have few types of credit used, which is another factor in credit scoring formulas. Finally, if they have just a single account with a low credit limit, any new charges will eat up that available credit and will be seen has having a relatively high level of debt.

How to Avoid These Problems

First, you should have a reliable system for paying your bills, preferably by using electronic bill payments from your financial institution. It’s also smart to have more than one credit card account open and to use the cards occasionally, in order to lengthen your credit history and raise your score. At the same time, you should use only a small percentage of your credit limit, in order to keep your credit utilization ratio low. And if you are struggling to make their minimum payments, it is vital that you contact your credit card issuers as soon as possible to arrange a payment plan.

Paying your credit card bills is important, but there are many other factors that contribute to your credit score.  You can see two of your credit scores, plus get a personalized analysis of the factors that determine your scores for free at Credit.com.

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