Although these are important factors that can help you choose the right credit card, there are still some little-known facts that can make or break your creditworthiness once you’ve decided on a card and have started using it. Here are five secrets that credit card companies won’t always tell you directly, but that you can use to your advantage when building or maintaining your credit profile:
Credit Card Companies Can ‘Snoop’ on How You Pay on Other Cards
Most people realize that payment history on other accounts directly impacts their credit scores, which in turn affects whether or not their credit card application is accepted. However, this initial check is not the only time that your payment history can affect your credit card account. If you are consistently late or over the limit on your other credit card accounts, some credit card companies will raise the rate you pay on their card, even if you’ve never been late paying them. The rationalization is that if you have poor payment performance on one account, theirs is likely to be impacted in the future.
They Can Raise/Lower Your Credit Limit at Any Time
In the same vein, how you pay other accounts can also affect your credit limits. Late payments to other accounts or going over your limit on other accounts can cause your credit limit to be lowered on accounts where your payment history and credit utilization is satisfactory. For example, let’s say you have a credit card with a $10,000 limit that you pay on time, and never use more than 20% of the balance. And let’s also say you have a credit card with a $5000 limit that is maxed out, and you’ve been late on a few payments. The company that issued the $10,000 credit card may decide to lower your credit limit significantly, even if you’ve never been late with a payment for them. This will directly impact your ability to get new credit, as part of your credit score is based on your credit utilization and lower credit limits are seen as higher risk and can lower your credit score.
You Can Ask for a Credit Limit Review Any Time
On the other hand, if you have a good payment history across all of your accounts but haven’t gotten a credit limit increase, in most cases you can just ask for one. Some credit card companies make this easy and automated. To see if your credit card company is one of these, just log into your account and look for a link that says “Credit Limit Increase” or “Credit Limit Review”. Otherwise, you can call customer service and ask directly. In most instances, you can ask for a credit limit increase every six months. Be aware that this may incur a hard inquiry on your credit file depending on the credit issuer, so don’t request credit limit increases on all of your cards at the same time. There are a few credit card companies that do automatic and periodic reviews, in which case you won’t be able to ask but you should be seeing regular limit increases if your payment history and credit scores are satisfactory. If not, call and ask about their criteria for raising credit limits so you know what you need to improve in order to qualify.
Paying Early Cuts Your Balance Faster
Nearly all credit cards charge interest on your average daily balance, and most cards have a 30-day grace period so that if you pay off your statement on or before the due date, you don’t accrue interest. If you can’t pay off your entire credit card balance, the next best thing is to pay early. Why? Because lowering your balance early in the month lowers your average daily balance, which in turn lowers the amount of interest you pay for your purchases. For example, let’s say you have a $1,000 balance on your card. If you pay $100 off immediately, you’ll only pay interest on the $900 balance remaining throughout the month. If, on the 15th of the month, you make an additional $100 payment, your average daily balance will be calculated like this: (15 x $900 + 10 x $800)/30 = $850. Therefore, instead of paying interest on the full $1,000 balance like you would if you waited to pay at the end of the month, you’ll only pay interest on $850. This adds up in the long run, especially when you have higher balances.
You Can Ask for (Some) Penalty Fees to be Waived
Let’s say you get a payment in a few days late, and are hit with one of those pesky $30+ late fees. Nothing to do but pay up, right? Wrong. If you have an excellent payment history with the credit card company, in most instances you can request to have that fee waived. It’s generally not something that you can request online. You’ll need to call in to speak to a representative, and expect them to scrutinize your past payment history and credit utilization before agreeing. Usually, you can only make this request once per year, or once every six months at the most, so don’t waste it.
To Sum Up…
Credit card agreements have a lot of confusing terms and conditions in the fine print, but there are ways to use these to your advantage if you are savvy and keep track of how you are using your credit. Pay attention to how much of your credit you’re using on each card, pay early, and make sure you are getting credit limit increases in order to improve your credit scores a Featured photo credit: Paper money, extreme macro/Kevin Dooley via flickr.com
