Sometimes, credit card advice isn’t as clear-cut as we’d like. It would be great if credit cards came with a user manual that could tell us the exact results of our actions.
But that isn’t possible because credit card advice isn’t a one-size-fits-all game. Everyone’s situation is a bit unique. Keeping that in mind, here are four credit card tips that don’t always turn out great.
Tip No. 1: Always Negotiate for a Better Interest Rate
The thought process with this advice? We’re told that the worst that can happen is that the credit card issuer might say no. Unfortunately, that isn’t the worst thing that could happen.
I used to go to a doctor who loved to pick my brain about credit cards. He once told me he called his credit card company and asked for a lower annual percentage rate and a higher credit limit. He didn’t get his wish.
In fact, due to his sloppy payment history, his APR increased and his credit limit decreased. This is a bad combination for your credit score. He should’ve asked me for my advice before he made that call.
When it works: If you have an excellent credit score and a stellar payment history, then go for it. Pick up the phone and ask for a better rate or a higher credit limit. If you have received other credit card offers with a better rate, then mention that, too. When you’ve got excellent credit, you’ve got leverage when it comes to the rates and terms of your credit cards.
[Read: The Best Travel Rewards Credit Cards of 2018.]
Tip No. 2: Closing Credit Card Accounts Won’t Lower Your Credit Score
It used to be standard advice that closing a credit card can decrease your credit score. But one of the three major credit bureaus, TransUnion, reported that this standard advice is a myth. To its credit, TransUnion included exceptions, but it’s dangerous to say that closing a credit card isn’t bad for your score. TransUnion’s report resulted in numerous stories suggesting that it was OK to close credit card accounts.
I’ll concede that it doesn’t lower your score 100 percent of the time. But your available credit is such a big part of your credit score that you can’t take this advice without doing your own homework.
You have a credit utilization ratio, which is the amount of credit used compared with the amount of credit you have available. If you close an account, you lose the credit associated with that card. For example, if you have three credit cards and they each have a $1,000 limit, then you have $3,000 of available credit. If you have a $1,000 balance across all three cards, then your ratio is 33.3 percent (1,000/3,000). This is already a little high.
Close one account and your ratio shoots up to 50 percent (1,000/2,000), which is not a good thing. This makes your credit score go down. It could also make your remaining credit card issuers take a look at your accounts. Issuers might see your suddenly high utilization ratio as a sign of impending financial disaster. Yes, they can get a little dramatic, but they might raise your APR and lower your credit limit.
Unless there’s a very good reason, keep the card and use it for a small monthly payment, such as for a gym membership. If you don’t ever use it, your credit card company might close it for you.
[Read: The Best Credit Cards for Bad Credit of 2018.]
When it works: If there’s an annual fee you want to avoid, then closing the account is an option. But other conditions have to be in place for this to be a safe credit move.
If you have a high credit score, low balances and a vast amount of available credit, you can probably close an account with minimum damage to your score. Before you close it, though, run the numbers and calculate your new ratio.
If you plan to apply for credit within the next six months, don’t close a credit card account. You want your score to be as high as possible so you get the best rate. This isn’t the time to take chances.
Tip No. 3: Stop Using Credit Cards if You Have Bad Credit
Not everyone who has bad credit is an out-of-control spender. Some people end up with bad credit due to unfortunate life circumstances, such as divorce, medical debt or job loss. Many consumers in this category had great credit before encountering a major crisis that affected their finances.
If this describes you, then responsible credit card use could be your ticket back to credit respectability. Use your new credit card as a credit-building tool. Keep your utilization ratio below 10 percent and pay the bill in full and by the due date. No exceptions!
If your credit reports and resulting credit score can’t stand up to scrutiny, then you might not qualify for an unsecured credit card. In this case, consider a secured credit card. Research them carefully. Choose one with low fees that reports your payment history to all three bureaus. Give it time and you’ll see an improvement in your score.
When it works: The advice to stop using credit cards is absolutely on point if your bad credit is the result of reckless spending. So, yes, if you are a shopaholic or in deep debt, step away from all credit cards. And don’t use them again until you’ve explored why you’re a shopaholic and addressed the underlying issue.
[Read: The Best Cash Back Credit Cards of 2018.]
Tip No. 4: Use a Rewards Credit Card and Save Money
On the surface, this looks like sound advice. I’ve used an airline-branded credit card for all my travel needs. And yes, I’ve gotten many, many free tickets and hotel stays with my miles. It works for me because I picked the right credit card and understood my rewards program.
But sometimes, this doesn’t work out well in the real world of consumers. Part of the reason is because it’s essential to choose a card that matches up with your lifestyle. If you’re a parent with four kids to feed, then maybe a cash back rewards card that offers a rebate on groceries is the right choice. If you travel frequently, then a travel rewards card or an airline-branded card is your best bet.
A U.S. News survey showed that almost half of consumers didn’t research their credit card’s rewards program. If the card isn’t a good match, that kind of explains why 25 percent of cardholders failed to even earn the sign-up bonus.
More troubling, according to a 2016 survey by the American Institute of CPAs, is that 14 percent of consumers ended up carrying a balance after using rewards for a trip. A free ticket is an exciting freebie, but make sure you can afford the hotel, food and sailing excursions without going into debt.
When it works: When you earn free travel or score a discount at the grocery store, it’s a beautiful thing. The key to success is choosing the right rewards card. So, think about your spending patterns and match your expenses to the right type of rewards. Then study your rewards program so you can profit from your credit cards.
And don’t ever, ever carry a balance with a rewards card. Rewards credit cards tend to have higher interest rates. If you carry a balance, you’re paying interest and wiping out some of your rewards.
More from U.S. News
What Is a Good Credit Card APR?
5 Ways You’re Wasting Your Credit Card Rewards
Credit Card Advice That Doesn’t Always Work originally appeared on usnews.com
