1. Credit card debt is listed on your credit report as “revolving” debt and this hurts your score more than a traditional loan with a set payback period.

The term “revolving,” where debt is concerned, means that you can charge it up, pay it off and charge it back up again. As you can imagine, if you have a lot of credit cards, it makes lenders nervous and it also makes your score go down.  Why? Because even if you have perfect credit and you pay all of your bills on time, after the bank gives you a mortgage, you could max out all of those credit cards and go into bankruptcy.

Bottom line: The ideal number of credit cards to have is one or two. This demonstrates that you are a responsible individual who does not need multiple cards. After all, why would anybody need more than one or two credit cards? You may have a good answer to that question, but to the credit bureau, more than a few credit cards translates into a poor ability to manage borrowed funds.

2. Never, ever take out a “cash advance” on your credit card. All credit card companies will eagerly supply you a PIN number so that you can withdraw cash from an ATM using your credit card. This is bad on so many levels.First of all, there is always a “cash advance fee” and it’s always between $25 and $50. So if you take out $250 from an ATM machine and the fee is $50, you just paid 20% interest, up-front and on-the-spot. You could pay it back in an hour, but you still paid a fee that amounts to 20% (in the example provided).

Secondly, if you read the fine print on your credit card agreement, you will find that the interest rate on cash advances is always ridiculously high- usually 26% or more.  So tack on that high interest rate to the “up front” interest you pay in the form of the cash advance fee.  It should be apparent that credit card cash advances should only be used in the most desperate of circumstances.

3. Keep all credit card balances at 50% or lower.
This is about something called your debt-to-credit ratio. Let us say that you have 3 credit cards and all three have a maximum credit limit of $1000. Ideally, you would not owe more than $499 on each card at any given time. This tells the credit bureau that you have a lot of credit available to you, but you don’t need to use it. You are responsible enough with your money that you just use credit cards as you need them.

Even if you pay all of your bills on time and have never paid late in your life, if all of your credit cards are maxed-out, your credit score is going to be poor or fair at best. This fact seems the most difficult for people to understand.

4. Shred all of your department store credit cards. You might want to stop reading right here if you have department store credit cards. You need to cancel and destroy them if your credit score is not as high as you need it or would like it to be.

Department store credit cards (Target, Kohls, Dillards) are the worst of the worst when it comes to credit card interest rates. They are always over 20% and- although this cannot be confirmed.  It is generally accepted that these cards affect your credit score significantly.  How?  Due to the fact that the terms are always terrible. A person that is wise about their spending would never take out a department store credit card. Use your Visa or American Express.  Is your Visa maxed-out? Well then, for goodness sakes, do not get a department store card. That shopping spree at the mall could cost you a new home.  This is no joke.  However, we know that stores will entice you with 10% or 20% off of your purchases if you apply for a store credit card that day.

If you are going to Home Depot and you are going to spend $2000 for new appliances it would be foolish not to take the $200 discount just for applying, right?  Abolutely right! Apply for the card and get the discount.  There is nothing wrong with applying for many different cards.  Just do not keep them.  Take the discount that the store is offering and when you get the credit card in the mail, immediately call to cancel. Put that card in the shredder the day it arrives. The only reason you would ever use a department store credit card is because your other cards are maxed out. If you other cards are maxed out, you should not be buying new items anyway. It’s just bad business.

5. If you are going to be late on a credit card payment, call the credit card company.
If something happens and you are unable to pay your credit card bill one month, call the credit card company. For some reason, many people avoid the telephone when they are in financial trouble.  This is the worst thing you can do. It usually just makes your collectors more aggressive. Most credit card companies are appreciative of a phone call if you are going to be late on a payment. In fact, if you call them and tell them that you had a problem this month, but you will send in the total past due amount within the next couple of weeks, they often agree not to report the “late” payment to the credit bureaus.

However, if you choose not to make payment and you don’t bother to call your creditor to keep them in the loop, they are going to report you every time you are late. Late payments on credit cards hurt your score very much.