Those with a bad credit history have an added responsibility of improving it and hence have to be extra cautious. One can make many mistakes when it comes to managing finances through credit cards. Since credit score and credit history are the mark of an individual’s creditworthiness, every effort should be made to keep them as impressive as possible. Here are some mistakes that have to be avoided, particularly by those who have a poor credit score below 500 and a credit history that is tainted with high outstanding debt, defaults and missed payments.
Chasing reward credit cards
Reward credit cards are seldom beneficial for those dealing with bad credit history. Rewards on credit cards benefit those with expensive lifestyles and those with bad credit history, should avoid that as much as possible. Moreover, reward credit cards are often characterized by a high annual fee, higher APR and also added fees and penalties that could ring the death knell for an individual’s credit history when it is already ailing. Chasing rewards could also lead to greater expenses and higher outstanding debt, both of which are detrimental to any progress one may achieve in the process of improving their bad credit history.
Managing multiple credit cards
Multiple credit cards mean multiple debts, more than one due date to keep track of and more than one APR to remember. As the number of cards increases, the terms and conditions, the interest rates, debts and due dates could confuse you leading you to miss out on payments for one or more of the credit cards. This could damage your credit history on one hand and also increase your debt through the addition of penalties on the other hand. Instead, credit card holders should look to using just one or in the worst case two credit cards, so that the debt is far more manageable. These should be the credit cards which offer the lowest interest rate on your outstanding debt.
Closing old accounts
Some card holders with bad credit make the great mistake of closing old credit card accounts when they go for balance transfers. This affects your credit history badly. When you close a credit card account
, you lose its history, thereby losing valuable points on your credit score. The longer the history the better it is for your credit score. Moreover, every credit card adds to your credit limit. If your outstanding debt is high, then you need a higher credit limit too, so that your outstanding debt to credit line ratio remains low as is the requisite for a good credit score. Hence avoid closing credit card or bank accounts even when you don’t intend to use them, as long as there are no added charges for maintaining such accounts.
Not negotiating with card issuers
Cardholders can negotiate with card issuers for lower interest rates. Card issuers are also obliged to draw up minimum payment plans for cardholders with bad credit, to help them get out of debt at the earliest.