Admit it: You’re sick of reading about the credit card mistakes 20-somethings should avoid. After all, if you’re well past the decade of frat parties, bad roommates and cheap beer, you might be wondering which plastic blunders you should be watching out for.
With that in mind, here are three common credit card mistakes to avoid in your 30s:
1. Paying bills late
You might assume that younger folks are most likely to be flighty about paying bills on time, but you’d be wrong. According to research conducted by the Federal Reserve Bank of Richmond, people between the ages of 35 and 44 are 10 percentage points more likely to have a serious delinquency than people between the ages of 18 and 20.
The study didn’t investigate why this is the case, but it’s possible that people in their 30s are facing multiple demands (work, childcare, social commitments, etc.) and simply have a harder time remembering to pay the bills. This is problematic, because 35% of your FICO credit score is determined by your history with making on-time payments. What’s more, ending up with a delinquency on your credit report could do serious damage to your score, making it hard to get credit in the future.
To combat the scourge that late payments can cause, the Nerds have a few tips:
- Set alerts on your calendar at work to remind you of when your credit card payments are due. While you’re at it, you might as well do the same for your utility, rent or mortgage payments, too.
- Sign up for text or email reminders from your issuers so that you’ll know when it’s time to pay up for the month.
- Consider signing up for automatic payments with your issuer. If you regularly keep enough in your checking account to avoid going into overdraft, this could be a good buffer against ever making a late payment in the first place.
2. Overutilizing available credit
Most of us think of the sandwich generation – people who are caring for both aging parents and their own children at the same time – as folks in their 40s and 50s. But many 30-somethings find themselves stuck in this situation, too. This can cause huge financial strain, which may lead some to overuse credit.
Thirty percent of your FICO credit score is determined by amounts owed, and the factor that influences this the most is your credit utilization ratio. Your credit utilization ratio is the amount you owe on your credit cards compared with their credit limits. If your balance exceeds 30% of the available credit on any of your cards at any point during the month, your credit score could suffer.
But when you’re using your card to pay for the kids’ day care and your mom’s doctor’s appointments, it’s pretty easy to surpass that threshold. Here are a few tips for keeping your credit utilization in check:
- Sign up to receive balance alerts via text or email from your issuers. If you’re getting close to the 30% utilization mark, make a payment.
- Schedule bi-monthly automatic payments to your card(s).
- If you’re creeping up on a 30% utilization ratio on one card, but can’t make a payment right away, switch to another card. Just be sure to pay both off in full by the due dates.
3. Canceling old cards
In an effort to simplify your financial life, you might think it’s a good idea to cancel some of the old credit cards you got in your 20s and never use anymore. But actually, this could be a dangerous move for your credit score.
The reason relates, once again, to your credit utilization ratio. Over the years, you’ve probably gotten several credit line increases on your cards, and the limits on your old ones are probably especially high. If you close them, you’re instantly eliminating a lot of available credit. This could significantly drive up your credit utilization ratio if you’re carrying balances on your other cards. As discussed above, a high credit utilization ratio could do serious damage to your credit score.
For most people, the safest bet is to keep old credit cards open and use them a few times per year so that the issuer doesn’t close them due to inactivity. If you really want to close your old accounts, be sure to do so strategically.
Parents in their 30s image via Shutterstock