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maxicam/iStock /Getty Images Plus/Getty Images
If you’re on the path toward building great credit to qualify for premium rewards cards or low-interest loans, avoiding timing mistakes is key.
For example, paying a bill late, failing to pay off an account and other timing errors can cost you big in terms of credit damage and missed financial opportunities, says Steve Bucci, author of “Credit Repair Kit for Dummies.”
“In credit, as in most of life, timing is everything,” he says.
Here are seven common credit card mistakes and how to fine-tune your timing in each scenario:
Timing mistake No. 1 – Not having a system in place to pay your bill on time. The first rule of credit cards: Always pay on time. But if you haven’t set up a system to help remember your due date, it’s easy to slip up when a life event or vacation throws off your normal routine. The consequences can include hefty late fees and damaged credit.
The timing fix: The best way to pay on time is to set up automatic payments, Bucci says. You can set up autopay either through your bank’s bill pay service, or through your card issuer’s website. Most issuers allow you to set a recurring monthly payment either for the minimum amount due, a set amount or the full balance. If you go through your own bank, which Bucci recommends because it gives you more control, you can log in each month to set up a recurring payment. Choose a payment date before your due date, such as right after you get paid. If necessary, call your card issuer to ask to change your monthly due date to one that better fits with your cash flow, Bucci says. “Put your payday and your bills in sync,” he says.
Timing mistake No. 2 – Not allowing enough time for a check to arrive. Some consumers still prefer to pay by mail, which requires extra attention to timing, says Sherry Tetreault, a certified credit counselor with ClearPoint Credit Counseling Solutions. Delay a little in sending your payment, and it could arrive late, she says.
The timing fix: Send your check within a week of getting your monthly statement, Tetreault says. The U.S. Postal Service may take five to seven days to deliver mail, and you want to allow plenty of time for the issuer to open and post the payment to your account, she says. The Credit CARD Act of 2009 requires issuers to allow 21 days between the date the statement is issued and the due date, which isn’t a ton of time if you’re relying on snail mail. “The sooner you pay, the better,” she says.
Timing mistake No. 3 – Assuming a cash advance has a grace period. Cash advances come with costly fees and sky-high interest that starts accruing immediately, says Katie Gampietro Burke, a certified financial planner in Jacksonville, Florida. In fact, a 2015 CreditCards.com survey of 100 cards found that no cards had a grace period for cash advances, and cash advance APRs can be as high as 36 percent. Interest also may start accruing right away when you use convenience checks that arrive in the mail from your card issuer. But many cardholders don’t realize there’s no interest-free grace period when they use a card to get cash, and a lot can rack up in a short time, Burke says.
The timing fix: Avoid taking a cash advance at all costs, Burke says. If you do get a cash advance, pay it off as quickly as possible to limit the amount of interest you pay, she says. For example, if you wait even a month to pay off a $1,000 cash advance that has a 28 percent interest rate, you’ll fork over more than $20 in interest. If you realize your mistake and take a no-interest loan from a relative to pay off the advance in less than a week, you could keep your interest around the cost of a latte. If you’re also carrying a lower-interest balance from purchases, the CARD Act requires the credit card company to apply your payments to the highest-interest debt first, so your extra payments really will chip away at that cash advance, Tetreault says.
Timing mistake No. 4 – Not taking advantage of the billing cycle to get extra time to pay off a big purchase interest free. If money’s a little tight but you still pay your bill in full every month, it may be a mistake to make a big purchase a day or two before your billing cycle ends. That bad timing could leave you scrambling to come up with the total amount within three weeks. “Almost nobody thinks about that,” Bucci says.
The timing fix: If you need to buy a new refrigerator or some other pricey item and could benefit from spreading out the cost over a couple of paychecks, make the purchase right after your statement is issued, signaling the end of a billing cycle. “Knowing your billing cycle is especially important if your cash flow is particularly tight,” Bucci says. For example, he says the billing cycle for his American Express card ends on the 12th of the month, so if he needs to make a purchase on the 11th, he’ll probably use a different card. “You want to be in the next billing cycle,” he says. “That gives you another month to use their money.”
Timing mistake No. 5 – Making a minimum payment too early so you get dinged for a missed payment. This is a common billing cycle mistake for cardholders who make the minimum payment, then throw extra cash toward their credit card balance during the month if they can, Tetrault says. For example, say you make a minimum payment right after you get your bill in early August, then a few weeks later you get a windfall and make another payment. Cash is short in the next month, so you mistakenly figure the late August payment covered your minimum payment for September. You incur a late fee and, if you don’t realize your mistake and fix the problem, a late payment is reported on your credit report. “People will get frustrated because they don’t understand why they got a late fee,” Tetreault says.
The timing fix: Read your credit card statement carefully so you know when one billing cycle ends and the next one begins, Tetreault says. Know that if you make two payments in one billing cycle, you’ll still have to make at least the minimum payment in the following cycle. “A credit card is not like an installment loan,” she says. If you have extra to put toward your bill now but anticipate being short on cash the following month, you may want to hold back enough to make the minimum payment next month. “Keeping track of your billing cycle so you get minimum payments in on time is very important,” Bucci says.
Timing mistake No. 6 – Failing to pay off a big purchase during a 0 percent promo deal. That card or deal with a retailer that offers 0 percent interest on a purchase paid off in full within a certain time frame sounds great, but you can get hit with interest on the whole purchase if you’re even a little late. In fact, Bucci recently made that mistake after he bought a bed on a no-interest-for-a-year deal. When month 12 rolled around, he got billed for $600 in interest. “I didn’t do the math,” he says.
The timing fix: If you make a purchase that offers financing with deferred interest, make a plan to pay it off at least one month early, Tetreault recommends. For example, if you buy a sofa on a 12-months-same-as-cash deal, divide the total you owe by 11 rather than 12, and pay that amount each month. “This way you know it will be paid in full on time,” she says. Also, make sure you never make a late payment, which could cause interest to kick in right away. And if you do make a mistake on timing, you can try to do what Bucci did. He called customer service, and the company agreed to waive the interest if he paid the balance immediately.
Timing mistake No. 7 – Failing to make the minimum spend in time causing you to lose a big sign-up bonus. Credit cards that offer sign-up bonuses typically require you to spend a certain dollar amount within a set time to get the bonus. For example, the Chase Sapphire Reserve card offers 100,000 bonus points if you spend $4,000 in the first three months, and the BankAmericard Travel Rewards credit card offers 20,000 bonus points if you spend $1,000 in 90 days. Some cardholders fail to make the minimum spend in time and receive no bonus, says Jacob Lumby, founder of CashCowCouple.com and TightwadTravelers.com, where he offers travel hacking tips. That can mean missing out on hundreds of dollars in rewards. “This problem is exacerbated when applying for multiple cards, because you have to meet the spend requirement on each card,” he says.
The timing fix: Apply for one card at a time, and note on your calendar the exact date by which you have to complete the minimum spend. The clock may start ticking when the card is issued rather than when you receive it, so double-check the fine print or call your issuer to ask. And it helps to keep great records, especially if you apply for multiple cards at one time, Lumby says. He and his wife, Vanessa, keep a Google spreadsheet to track the date of each card application, the spending requirement, the date of the bonus, and, eventually, the date of card closure. “By tracking these things, it becomes easier to remember important dates and time constraints,” he says.
Remember time is money, and beating the clock on your credit cards now could save you big in the future.