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Credit Card Account in Good Standing: What Does That Mean?

Credit Cards, Credit Score, Paying Off Debt, Personal Finance
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Credit card account in good standing

Using a credit card carefully is a smart way to earn rewards on your purchases and build a good credit score. But it’s understandable if you’re in the dark about what responsible credit card use really means – after all, there’s room for interpretation in many of the phrases the industry bandies about.

For example, what does it mean to have for your credit card account in good standing? If you’re not sure, take a look at the details below to find out.

What it really means to have a credit card account in good standing

In general, keeping your credit card account in good standing means that you’re making at least the minimum payment by your billing due date. Some issuers also consider an account to be out of good standing if you’ve exceeded your credit limit, but usually making on-time minimums is all you’ll need to do.

It’s important to note, though, that there’s no single, industry standard definition of the term. If you find yourself in a situation where you need to know what your issuer exactly means by “in good standing,” you should place a call to its customer service line to find out.

Why staying in good standing is essential

Although keeping your credit card account in good standing might seem simple, it’s absolutely essential that you don’t slip up and lose this status with your issuer. Doing so could cause a tidal wave of negative consequences, including:

Damaging your credit – If you don’t pay on your credit card and your account falls out of good standing, you’ll end up doing serious damage to your credit. Delinquencies of 30 days or more are generally reported by issuers to the credit bureaus and will stay on your credit report for up to seven years.

This will look bad to potential future lenders on its own, but it gets worse: Since your history with making on-time payments accounts for 35% of your FICO credit score, you should expect it to drop substantially if you miss payments or fall into default. This will make it difficult or very expensive to get credit in the future.

Getting hit with extra interest and fees – Since falling out of good standing means you’re making late payments, you’ll end up getting slammed with a series of late fees. Usually, issuers charge $25 for your first late payment and $35 for each one thereafter, so this could seriously add up over time.

What’s more, missing payments could trigger your issuer to start charging you the penalty APR. This can run as high as 29.99%, which is just one more reason that losing good-standing status is very expensive.

Losing rewards – If you read your Cardmember Agreement carefully, you’ll probably notice that in order to keep earning and redeeming rewards, your account must be in good standing. If it’s not, you could lose those points or miles you’ve been working so hard to build up.

Responsible credit card use requires more than the bare minimum

Staying in good standing on your credit card account is important, but you should know that this constitutes the bare minimum when it comes to responsible credit card use. To be an ideal credit card user, you’ll need to:

  • Pay your balance in full every month. This is the only way to avoid interest charges, so make sure you’re budgeting and tracking your spending carefully.
  • Keep your balances below 30% of your available credit on all your cards, at all times during the month. Over-utilizing credit will hurt your credit score.
  • Minimize fees. This can usually be accomplished by choosing the right credit card. For example, if you frequently travel overseas, pick plastic that charges no foreign transaction fee in order to keep costs down.
  • Monitor your account for unusual activity. Get into the habit of logging into your online account at least once per week to review its details. If you spot anything suspicious, notify your issuer immediately.
  • Apply for new cards sparingly. Too many credit card applications in a short span of time will hurt your credit score, so a good rule of thumb is to space them out by about six months.

The takeaway: To keep your credit card account in good standing, you’ll need to pay at least your minimum by the billing due date. But being a responsible credit card user means much more, so be sure to keep the Nerds’ tips above in mind.

Good standing image via Shutterstock