NEW YORK (MainStreet) You know what you should do with your credit card... but do you know what not to do with your credit card? It takes years to build up your credit rating, but you can tear it down literally in days if you don't exercise credit card best practices. And while some things will just give your credit a little ding, other credit card mistakes will bury your credit in no time flat. These are the seven things you should absolutely avoid when it comes to credit.
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Don't Confuse Credit With Income
Randy Padawer, a consumer advocate with LexingtonLaw believes one of the biggest mistakes people make is mistaking credit for income.
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"If I had to pick the dumbest thing people do with their credit cards it's definitely this," he says. Rather than income, Padawer says that credit cards are a way to borrow money with ease and, as he notes, "with pretty steep interest rates."
"When you use a credit card, you're effectively spending someone else's money," he says -- money that you're going to have to pay back, often at steep interest.
Don't Start a Business Using a Credit Card
"Be very cautious about using credit card money to start a business," says Armando Roman, a member of the National CPA Financial Literacy Commission. "It's tempting, because it's there. But pulling it out is very expensive." Instead, you should go to the bank and get a business loan. The terms are much more favorable, and most new businesses just won't survive. "The statistics are not in your favor," he says, "So I would be very cautious about using your credit cards to start a business."
Don't Use Too Much Credit
One thing most people don't think about is their credit utilization ratio. This is effectively the amount of your credit that you're using. Randy Hopper, vice president of credit cards at Navy Federal Credit Union, recommends that people only use about 30% of their available credit.
"You should look at your budget and see how your monthly payment fits into that," he says.
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Padawer concurs, adding "maxing out your credit cards is one of the surest ways to kill your credit score."
Don't Do Balance Transfers You Can't Pay Off Before the Introductory Period Is Over
Roman and his colleague Lisa Featherngill, also of the National CPA Financial Literacy Commission agree: balance transfers can be a bad idea.
"Don't just pay off your credit card with a balance transfer to get a low introductory rate," Featherngill says.
Roman adds, "It just kind of kicks the can down the road."
If you can pay off your balance at the introductory rate, you stand to save hundreds of dollars. If you don't, however, you can just end up getting yourself deeper into debt.
Don't Use Credit Cards Online Without a Secure Connection
While it's less of a concern than it was a few years ago, some people are still using their credit cards at websites without a secured connection. "Look for the HTTPS and the little lock symbol," says Matthew Goldman, CEO of Wallaby. "Buying something without a secured connection is just asking for it."
Don't Leave Your Credit Card In Unsecured Locations
It's not just about using unsecured connections online, however: it's also about not leaving your credit card in less-than-secure locations on your property. "People lend their credit card numbers to people and that's just a bad idea," says Goldman.
Padawer agrees: "Emailing credit card numbers or being sloppy about who you share your credit card with a recipe for identity theft."
More than just not sharing your credit card number, you should also keep your credit card in a secure place at all times -- which is not a block of ice in your freezer, as some might suggest.
Goldman notes that burglars are increasingly aware of this storage tactic and routinely raid freezers. "Keep it somewhere locked," he says, adding that "in general the most secure place is on your person."
Another insecure place? Your glovebox. "I know a lot of people who keep a spare card in their glovebox, but what about if you valet park or your car gets broken into," says Goldman. This is especially problematic because it could be days or even weeks before you notice that the card is missing.
Don't Carry a Balance on Store Cards
Featherngill is adamant: do not carry a balance on a store credit card.
"Look at the rates on a store card versus a bank card," she says. "If you're going to buy something at a department store, it's a much better option to use a bank card."
Of course, the worst thing you can do with a credit card is "spend spend spend," says Padawer. "'Spend spend spend' really means 'borrow borrow borrow."
Not only can this ruin your finances, she says, but "it can begin to impact everything about your life, from your ability to get a job to your family relationships."
--Written by Nicholas Pell for MainStreet