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Credit card rewards can be tempting. They can also be expensive.
Almost 70% of people with credit card debt try to withdraw money and other benefits from their card, even if they have a balance that costs them interest, according to to a new survey from Bankrate.com.
âIt’s a bad idea – if you have month-to-month credit card debt, you have to forget about the rewards and prioritize your interest rate,â said Ted Rossman, analyst. credit cards at Bankrate.com.
People with a balance on their cards – who make up about 60 percent of cardholders, according to the American Bankers Association – should stay on the sidelines of the rewards game, Rossman said.
âThe math just doesn’t work – 2% cash back on a 17% interest rate is a losing proposition,â he said. (The average interest rate today is nearly 18%, down from 12% ten years ago, according to Creditcards.com.)
Here are some other unexpected moves that can lower your score.
Looks like you’re doing something right: an old unpaid bill pops up and you make a partial payment on it.
However, sometimes those debts are already so old that they are not legally enforceable, said Katherine Lucas McKay, who focuses on consumer debt at the Aspen Institute.
Once the debt collector records your active payments, it’s legal in many states for the debt to be treated as new, said Lucas McKay.
Often the easiest thing to do, she said, is pay off the balance completely. âYour score will start to increase again once this record is closed,â she said.
If you believe the collection agency is acting inappropriately, file a public complaint with the Consumer Financial Protection Bureau. For debt collectors, she said, it is often easier to fix the problem “rather than asking their regulator to look into the situation.”
Credit card debt
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After paying off a credit card, you can close the line of credit.
Keep in mind that this will lower your overall credit limit and, therefore, could increase your usage rate – the amount of credit you are using versus what is available to you.
âSome data from FICO shows that people with a credit score above 800 typically maintain a credit ratio below 10%,â said Bruce McClary, vice president of communications at the National Foundation of Credit Counseling.
To make up for the smaller credit limit, you should have a strategy to pay off the remaining balances as quickly as possible and bring the usage rate back to an acceptable range, McClary said.
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At this point, 10% of your score is on the variety of your debt, said Matt Schulz, credit expert at CompareCards.com.
âIf you’ve had a car loan, personal loan, credit card, and mortgage and you’ve managed them all well, you’re likely to score higher than someone who just got a credit card – all other things being equal, âsaid Schulz.
This is because lenders have more data points which they can draw from in making their decisions.
You shouldn’t go out and get a loan that you don’t want or need just to boost your score a bit, he said, but “it’s worth considering in certain circumstances. “.