Welcome to February. With New Year's celebrations firmly in the rearview mirror, it's time to turn your gaze from Times Square's crystal ball and point it toward ways to improve your credit.
Every month, the Nerds round up a new set of credit card tips to help you maximize rewards and minimize costs with each use. Here are our tips for February 2016.
Pull your free credit report
Even if you have no reason to suspect fraud, it's still important to check your credit report at least once a year for errors, omissions or abnormal activity that might be affecting your credit score.
Under federal law, you're entitled to one free credit report from each of the three major credit bureaus every year. Get yours at AnnualCreditReport.com. If you do see incorrect information — a credit inquiry you don’t recognize, for example, or maybe a late payment on an account that you know you've closed — take steps to address the problem. The sooner you discover an error, the easier it may be to fix, and the faster your credit report will show an accurate history.
Reconsider your annual-fee cards
If you signed up for a credit card with an annual fee around this time last year — perhaps one that waived the first year's fee — you’ll soon be faced with the decision of whether renewing the card and paying an annual fee is worth it.
The easiest way to determine whether you should cough up the cash and keep the card is to look at your spending and rewards from the past year. If the card in question earns cash back, and the amount of cash back earned over the course of the year outweighs the annual fee, then keeping the card probably makes sense. If your card earns points or miles instead of straight cash, converting the card’s currency to dollars will make the decision just as clear.
Here are some of NerdWallet's points valuations for the more popular rewards currencies:
Chase Ultimate Rewards are generally worth 1–1.25 cents each.
Starwood Preferred Guest Starpoints are generally worth 2.3 cents each.
American Express Membership Rewards points are generally worth 0.5–1 cent each.
Capital One miles are generally worth 0.5–1 cent each.
Citi ThankYou points are generally worth 1 cent each or less.
Nerd tip: Keep in mind that if you're a good customer, it's generally in a credit card issuer’s interest to keep you. If the fee you're paying just isn't worth the rewards you're getting from a card, it's OK to call the issuer and ask to cancel. A customer service representative might review your record and, if you qualify, offer to convert your account to a card that doesn't charge a fee or that provides more generous rewards, or provide some other incentive. There's no guarantee that this will happen, of course.
Look out for your limit
It’s easy to consider your credit limit as an amount that can — and maybe should — be used. But getting close to your credit limit can hurt your credit score.
The percentage of your available credit that you're currently using — otherwise known as your credit-utilization ratio — influences the 30% of your FICO score that's tied to "amounts owed." Simply put, if you’re using too much of your available credit, your credit score could decline. How much is too much? There is no hard-and-fast definition, but a good rule of thumb is to keep your credit usage below 30% of your total available credit. Try not to let your debt reach 30% of your credit limit on any individual card — or on all your cards taken together.