Be a savvy credit cardholder

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The credit card habits that save you money also happen to keep your rates from rising and your credit limits from falling. Thank the big guy for small favors.

The best way to protect against negative changes to your account is to “make sure you don’t spend what you don’t have, you don’t carry a balance, you pay bills on time,” says Ethan Ewing, president of in San Mateo, Calif. “As long as you do those things, you’re not going to find yourself in a situation where issuers are raising rates or changing terms or at least not in a situation where it’s going to affect you negatively.”

Live by the following strategies to build a great credit score without drowning in fees, debt and finance charges. We’ll explain what to do if an issuer still treats you wrong.

12 steps to credit card success
  1. Think of long-term needs
  2. Scrutinize terms and conditions
  3. Pay on time
  4. Pay in full
  5. Pay down your balance
  6. Know thy limit
  7. Keep your cards manageable
  8. Know how payments are applied
  9. Check credit report, score
  10. Monitor transactions
  11. Call for a lower rate
  12. Know when to switch cards

1. When getting a new card, think long-term

Taking on a new credit card should be like shopping for quality furniture. Look for a card you could stand to keep for years. Try not to accumulate store cards, because they usually have low credit limits and high interest rates. A few pairs of shoes on a retail credit card and your balance can look high relative to your credit limit, bringing down your credit score. Balances owed comprise 30 percent of your FICO credit score.

Don’t let prescreened offers that promise attractive interest rates and terms dazzle you. “Just because you get a prescreened offer doesn’t mean you are eligible for that credit offer as well,” says Mindy A. Bockstein, chairperson and executive director of the New York State Consumer Protection Board.

The issuer reserves the right to check your credit before approving your application. You could get denied credit or receive a card with a different interest rate altogether.

Limit your potential for identity theft by opting out of prescreened offers. When you’re ready for a new card, use our credit card comparison tool to shop for a card based on your credit profile.

Gauge your credit scores for free by using our FICO Score Estimator.

If you’re looking for a credit card that offers cash back for your purchases, see Bankrate’s exclusive study on cash-back rewards cards.

2. Scrutinize terms and conditions

Never apply for a card without reading the terms and conditions of the card. This gives you the chance to find out about fees and anti-consumer policies. Common ways a card can dip into your wallet include annual fees, late fees, cash advance fees, overlimit fees and balance transfer fees.

Consider how you would use the card and how many of the fees would apply to you. For instance, if there’s a fee to pay by phone, think about how often you’ve made last-minute payments or called to pay because you were traveling.

Read the fine print to figure out what triggers the default rate. Watch out if the issuer practices universal default, meaning that if paying late to any other creditor your annual percentage rate, or APR, could jump to the default rate. If the issuer can increase your rate based on your credit history, that’s another way of saying your rate could rise based on delinquencies with unrelated lenders.

Obviously, pay attention to the interest rates for purchases, cash advances and balance transfers.

Experts say it’s a good idea to have two major credit cards — one you pay off every month, preferably with rewards, and one with a low interest rate for big-ticket items or emergencies. If you wind up with more then two cards, the extra credit limits can help your credit scores, but only if you keep your balances low. A component in the FICO scoring model penalizes consumers for having balances on too many cards, so try to not to use all of them at once.

3. Pay on time

Pay more than 30 days late and watch your credit score fall, your rate skyrocket and a late fee appear your statement.

Your payment history accounts for 35 percent of your FICO score. Paying more than 30 days late to an issuer could bring down your credit score and leave a blemish on your credit report for up to seven years.

Besides the credit score ding, the late fee will get you right where it hurts financially. As of mid-August, the average late fee is $22 for fixed-rate cards and $29 for variable-rate cards, according to Bankrate’s weekly survey of credit card interest rates. (Check out current rates on Bankrate’s Interest Rate Roundup.)

To avoid paying late, mark a mail-by date on your calendar, or sign up for e-mail alerts if you pay bills online.

Allow for processing time, which could take several days. Bockstein says the New York State Consumer Protection Board has heard from consumers who think they paid on time, but were late because the payment either wasn’t received or posted on time.

Even online bill payers should call their issuers and ask when the payments get posted if they’re unsure, she says. “Sometimes what they think is 24/7 convenience is not because it’s not posted.”

If you’re ever late, for whatever reason — you forgot about the bill, went out of town, got sick, etc. — call the bank and explain why you were late. If it’s your first time paying late, likely the issuer will waive or reduce the fee. You don’t want to make this request too often, though. “I suspect they’d probably understand once a year, but not once a month,” says Cate Williams, vice president of financial literacy at Money Management International, a nonprofit credit counseling firm.

Do the same if your rate increases due to a late payment, referencing your previously stellar payment history. Bockstein says, “Sometimes the issuer will make an allowance and adjust accordingly and may waive a fee or penalty once or twice if you have a good record.”

4. Pay in full

Pay the entire amount due every month and you’ll never pay interest.

“We advocate paying the bill in full,” says Bockstein. “Just paying the minimum won’t get you out of hot water.”

Even when you have a zero percent introductory rate on a new card, work at paying off the balance. Many card issuers have reduced the introductory period to six months or less, so make sure you know when the teaser rate expires. To enjoy free financing, make a plan: Divide the total amount of debt by the number of months in the introductory period and that’s your monthly payment. For example, if you charged $3,000 to a card with a six-month zero percent interest introductory rate, your monthly payment should be at least $500. Make the payment even fatter when you have the money to do so.

5. Pay down your balance

When you can’t pay in full, try to pay more than the minimum. Our minimum payment calculator shows how long it will take you to pay off debt by paying the minimum. It will motivate you to reduce that outstanding balance more quickly.

Paying down the balance should also boost your credit scores. Balances owed make up 30 percent of your FICO score. Experts disagree over the ideal utilization ratio, but many advise using less than 30 percent of your card limit. High balances can hammer your credit scores and result in a credit line reduction or an increased interest rate.

Explore the frugal tips on for ways to free up money to pay down debt.

6. Know thy limit

When you max out a card, you hurt yourself in numerous ways. Your credit score will take a hit. Going over the limit typically results in an overlimit fee, and that could trigger the default rate.

Keep a running tab of your purchases and stop at the 30 percent utilization mark. For example, if your card has a $2,000 limit, try not to charge more than $600.

7. Keep your cards manageable

Don’t carry more cards than you can handle. Ideally you don’t want to close cards because those extra credit limits help cushion your credit score if those cards don’t have balances on them. If having more than two cards tempts you to spend, however, or if managing more than two accounts gets too complicated, keep things simple and close an account. If you’re within six months of applying for a major loan, however, hold off on closing a card. Bankrate’s story, “Closing credit cards dings credit score,” explains what you need to know about canceling accounts.

If you have cards you seldom use but want to keep them open for the sake of your credit scores, use them every six months to keep them active. Buy something inexpensive and pay it off.

8. Understand how payments are applied

Interest rates are often different for cash advances, balance transfers and purchases. Issuers will often state in the contract that they reserve the right to apply payments to lower-rate balances first before higher ones. When you take out a cash advance, for example, payments you make would apply to your purchases first, because the rate on that balance is typically lower than on cash advances.

The average cash advance rate is currently 14.55 percent for fixed-rate cards and 14.82 percent for variable-rate cards. Average purchase rates stand at 11.78 percent for fixed-rate cards and 11.31 percent for variable-rate cards.

9. Check your credit report and score

Make sure your on-time payments are reported by checking your credit reports, says Steven R. Katz, director of consumer education for TransUnion’s

You can do this three times a year for free, by going to and pulling a report from a different credit-reporting agency every four months. Residents of Colorado, Maine, Maryland, Massachusetts, New Jersey and Vermont can get an additional free report from each bureau, and Georgians can get two additional credit reports by contacting Equifax, Experian and TransUnion.

Dispute any errors on your credit report. Getting inaccurate derogatory items off your report can boost your credit score.

Credit scores are worth checking to get a sense of your credit risk. Most lenders use FICO scores, which you can buy at Each credit bureau also sells a credit score, which you can add to the purchase of your credit report for a few dollars.

10. Monitor transactions

To protect yourself against wrongful charges and credit card fraud, reconcile receipts with your statement, and dispute errors with the issuer. Doing this allows consumers to withhold payment on the disputed amount. “Consumers need to know they can’t withhold payment on the entire bill,” warns Bockstein, because they’ll get slapped with a late fee and a higher interest rate.

Don’t assume you can’t be a credit card fraud victim if you still possess the card. Fraudsters can use skimming devices to steal information from the magnetic strip on your card and create a counterfeit copy. Report suspicious transactions to your issuer, and you are only liable for $50 in fraudulent charges.

11. Call for a lower rate

Call customer service once in a while and ask for a lower rate. Mention offers for lower-rate credit cards and the issuer may accommodate your request.

“If you’ve had a late payment or gone over your credit limit, wait at least six months before asking for a lower rate,” suggests Kristine McKinley, a Certified Financial Planner and CPA at Beacon Financial Advisors, based in Lee’s Summit, Mo.

12. Know when to switch cards

If you dutifully follow these tips and your issuer still jacks up your rate or reduces your credit line — and doesn’t negotiate when you call — it may be time for a new card.

“Move your business elsewhere if you’ve done nothing wrong and they start changing the rules on you,” says Ewing of

When paying off the balance isn’t an option, consider getting a top balance transfer credit card to help consolidate your debt and pay it off without paying interest. The story, “5 balance transfer trip-ups,” explains how to avoid expensive mistakes when moving your balance to a new card.