Credit Card Rules

by Donna Ryder

In this article, we’ll breakdown some of the key rules of credit cards.

You’ll improve your credit while automatically being rewarded for the purchases you’re already making. 

Optimizing your credit is a multistep process.

First, we’ll set up automatic credit card payments so you never miss a payment again. 

Then, we’ll see how to cut fees, get better rewards, and take everything you can from the credit card companies.

When To Pay Off Your Credit Card? Pay It On Time

Yeah, we’ve all heard it, but what you may not know is that your debt payment history represents 35 percent of your credit score—the largest chunk. In fact, the single most important thing you can do to improve your credit is to pay your bills on time. 

Whether you’re paying the full amount of your credit card bill or risking my wrath by paying just part of it, pay it on time. Too many people get caught using credit card scripts trying to normalize their debt or not paying their debt. Don’t do it!

Lenders like prompt payers, so don’t give your credit card company the opportunity to raise your rates and lower your credit score by being a few days late with your payment. 

This is a great example of focusing on what will get you rich, not on what’s sexy. Think about your friends who search every single website to get the best deals on travel or clothes. 

They might be thrilled after saving $10—and they can brag to everyone about all the special deals they get—but you’ll quietly save thousands by understanding the invisible importance of credit, paying your bills on time, and having a better credit score.

Today, most people pay their credit card bills online, but if you haven’t set up automatic payment yet, log on to your credit card’s website to do so now. 

Note: Don’t worry if you don’t always have enough money in your checking account to pay off the full amount on your credit card. You’ll get a statement from your card company each month before the payment goes through so that you can adjust your payment as needed.

I totally forgot the due date for my credit card. So not only did they charge me a late fee, but  they  charged  me interest on that month’s and the previous month’s purchases. I called up the customer service line of the card and told them that I had been a good customer in the past and asked if they could do anything for me with the fees. The representative removed the late fee and refunded $20 of the interest charge back to my account. They returned a total of $59 to me with one phone call.

—ERIC HENRY, 25

The Most Important Credit Card Rule: Never Miss A Payment (and what happens if you do)

If you miss even one payment on your credit card, here are four terrible, horrible, no good, very bad results you may face:

1. Your credit score can drop more than 100 points, which would add $227/month to an average 30-year fixed-rate mortgage.

2. Your APR can go up to 30 percent.

3. You’ll be charged a late fee, usually around $35.

4. Your late payment can trigger rate increases on your other credit cards as well, even if you’ve never been late on them. (I find this fact amazing.)

Don’t get too freaked out: You can recover from the hit to your credit score, usually within a few months. In fact, if you’re just a few days late with your payment, you may incur a fee, but it generally won’t be reported to the credit bureaus. Find out what to do if you miss a payment.

What To Do If You Miss A Credit Card Payment?

Nobody’s perfect. Despite my warnings, I understand that accidents happen and you might miss a payment at some point. It’s one of the biggest credit card mistakes to avoid. When this happens, I use my Indian heritage to beat the companies by negotiating with them, and you can, too:

YOU: Hi, I noticed I missed a payment, and I wanted to confirm that this won’t affect my credit score.

CREDIT CARD REP: Let me check on that. No, the late fee will be applied, but it won’t affect your credit score.

(Note: If you pay within a few days of your missed bill, it usually won’t be reported to the credit agencies. But ask to be sure.)

YOU: Thank you! I’m really happy to hear that. Now, about that fee . . .

I understand I was late, but I’d like to have it waived.

CREDIT CARD REP: Why?

YOU: It was a mistake. It won’t happen again, so I’d like to have the fee removed.

(Note: Always end your sentence with strength. Don’t say, “Can you remove this?” Say, “I’d like to have this removed.”) At this point, you have a better-than-50-percent chance of getting the fee credited to your account. But just in case you get an especially tough rep, try this.

CREDIT CARD REP: I’m very sorry, but we can’t refund that fee. I can try to get you our latest blah blah marketing pitch blah blah . . .

YOU: I’m sorry, but I’ve been a customer for four years and I’d hate for this one fee to drive me away from your service. What can you do to remove the late fee?

CREDIT CARD REP: Hmm . . . Let me check on that . . Yes, I was able to remove the fee this time. It’s been credited to your account.

You don’t believe me that it can be so simple? It is. Anyone can do it. If you do miss payments frequently or multiple payments, you’ll want to find all your debt and keep track of it.

Get Your Credit Card Fees Waived

This can be a great way to optimize your credit cards, because your credit card companies will do all the work for you. Call them using the phone number on the back of the card and ask if you’re paying any fees, including annual fees or service charges. 

How To Get Your Credit Card Fees Waived

Use this simple script to get your fees waived. It should go a little something like this:

YOU: Hi, I’d like to confirm that I’m not paying any fees on my credit card.

CREDIT CARD REP: Well, it looks like you have an annual fee of $100.

That’s actually one of our better rates.

YOU: I’d rather pay no fees. Can you waive this year’s annual fee?

Earlier I mentioned that it can be worth paying annual fees for rewards cards. This is true—but why not ask? Remember, credit card companies compete ferociously with each other, which can benefit you. Call them a month before your new annual fee kicks in and ask them to waive it. Sometimes it works, sometimes not.

If you decide that your credit card fee isn’t worth it, ask your credit card company what they’ll do for you. If they waive your fees, great! If not, switch to a no-fee card. I suggest you do this at the same credit card company to simplify your life—and so you don’t have to close one account and open another, which will temporarily affect your credit score.

What Is APR on a Credit Card?

Your APR, or annual percentage rate, is the interest rate your credit card company charges you. APRs fluctuate, but in general, they hover around 13 to 16 percent. That is very high! This makes it extremely expensive if you carry a balance on your card.

Put another way, since you can make an average of about 8 percent in the stock market, your credit card is getting a great deal by lending you money. If you could get a 14 percent return, you’d be thrilled. You want to avoid the black hole of credit card interest payments so you can earn money, not give it to the credit card companies.

Negotiate a Lower APR on Your Credit Card

So, call your credit card company and ask them to lower your APR. If they ask why, tell them you’ve been paying your bill in full on time for the last few months, and you know there are a number of credit cards offering better rates than you’re currently getting. (See Sample script.) In my experience, this works about half the time.

It’s important to note that your APR doesn’t technically matter if you’re paying your bills in full every month—you could have a 2 percent APR or 80 percent APR and it would be irrelevant, since you don’t pay interest if you pay your total bill each month. But this is a quick and easy way to pick the low-hanging fruit with one phone call.

Reading IWT, I’ve probably saved $15,000 to $25,000 in interest alone. I’ve negotiated car loans, student loans, home loans, etc.

—LYLA NUTT, 30

Credit Card Rule: Keep Your Cards Open For A Long Time

Lenders like to see a long history of credit, which means that the longer you hold an account, the more valuable it is for your credit score. Don’t get suckered by introductory offers and low APRs—if you’re happy with your card, keep it. Some credit card companies will cancel your account after a certain period of inactivity.

Should You Keep a Credit Card Open With No Balance

No, you need to use it. To avoid having a card you rarely use shut down, set up an automatic payment on it.

For example, I set it up so that one of my credit cards pays a $12.95 monthly subscription through my checking account each month, which requires zero intervention on my part. But my credit report reflects that I’ve had the card for more than five years, which improves my credit score.

Play it safe: If you have a credit card, keep it active using an automatic payment at least once every three months.

Should I Close My Old Credit Card

Now the one tricky part: If you decide to get a new card, should you close your old card? I’ve changed my view here over the years. The typical advice is to keep cards open for as long as possible, which is generally smart. But if you have lots of cards that you never use, reconsider this.

Some of my readers have opened over twenty-plus cards to “churn” rewards, and now they can’t keep track of all their cards. 

How Long To Keep A Credit Card Open?

This is where you have to make a decision on risk versus reward and simplicity versus complexity. There’s lots of advice warning against closing credit cards, but as long as you’re paying your balances on time and have good credit, closing an old card will not have a major long-term impact on your credit score.

Think balance: For most people, having two or three credit cards is perfect. If you have a special reason to have more cards—for example, if you own a business or are intentionally maximizing temporary sign-up rewards—great. But if you find yourself swamped with the number of cards you have, close the inactive ones. 

As long as you have good credit, the long-term impact will be minimal and you’ll sleep easier at night with a simple financial system you can easily keep track of.

Get More Credit

(Warning! Do this only if you have no debt.) This one is counterintuitive, and to explain it, I have to reach into personal finance lessons of yore. Many people don’t realize this, but in the classic ’80s Salt-N-Pepa song “Push It,” when they say that the dance isn’t for everybody—“only the sexy people”—they are actually detailing a sound personal finance strategy.

Before I explain, I want to first acknowledge that, yes, I did just quote Salt-N-Pepa in an actual, published book. Anyway, when Salt-N-Pepa talk about “only the sexy people,” what they really mean is “This tip is only for the financially responsible people.” I’m serious about this warning: This tip is only for people who have no credit card debt and pay their bills in full each month. It’s not for anyone else.

Credit Utilization

It involves getting more credit to improve something called your credit utilization rate, which is simply how much you owe divided by your available credit. This makes up 30 percent of your credit score. For example, if you owe $4,000 and have $4,000 in total available credit, your ratio is 100 percent (($4,000/$4,000) x 100), which is bad.

If, however, you owe only $1,000 but have $4,000 in available credit, your credit utilization rate is a much better 25 percent (($1,000 / $4,000) x 100). Lower is preferred because lenders don’t want you regularly spending all the money you have available through credit —it’s too likely that you’ll default and not pay them anything.

To improve your credit utilization rate, you have two choices: Stop carrying so much debt on your credit cards (even if you pay it off each month) or increase your total available credit. Because we’ve already established that if you’re doing this, you’re debt-free, all that remains for you to do is to increase your available credit.

How To Increase My Credit Limit

Here’s how: Call up your card company and ask for a credit increase.

YOU: Hi, I’d like to request a credit increase. I currently have five thousand dollars available, and I’d like ten thousand.

CREDIT CARD REP: Why are you requesting a credit increase?

YOU: I’ve been paying my bill in full for the last eighteen months and I have some upcoming purchases. I’d like a credit limit of ten thousand dollars. Can you approve my request?

REP: Sure. I’ve put in a request for this increase. It should be activated in about seven days.

I request a credit-limit increase every six to twelve months. Remember, 30 percent of your credit score is represented by your credit utilization rate. To improve it, the first thing you should do is pay off your debt. Only after you’ve already paid off your debt should you try to increase your available credit. Sorry to repeat myself, but this is important!

When my husband and I were in college, we got a free T-shirt or something and got credit cards with reasonable limits ($500). Sure, I had no income, but that didn’t seem important at the time. Wouldn’t you know it, I was responsible enough to have my limit raised to $2,000  after a very short period of time! Except  that I wasn’t actually responsible, and I paid thousands of dollars in interest and late fees and wrecked my credit rating for several years. It took many years for us to clear up this debt. I can’t name one purchase that was truly necessary.

—MICHELE MILLER, 38

Credit Card Rule: Use Your Credit Card Secret Perks

Before I get into rewards programs, let me say this: Just like with car insurance, you can get great deals on your credit when you’re a responsible customer. In fact, there are lots of tips for people who have very good credit. If you fall in this category, you should call your credit cards and lenders once a year to ask them what advantages you’re eligible for. Often, they can waive fees, extend credit, and give you private promotions that others don’t have access to. Call them up and use this line:

“Hi there. I checked my credit and noticed that I have a 750 credit score, which is pretty good. I’ve been a customer of yours for the last four years, so I’m wondering what special promotions and offers you have for me . . . I’m thinking of fee waivers and special offers that you use for customer retention.”

As discussed, credit cards also offer rewards programs that give you cash back, airline tickets, and other benefits, but most people don’t take advantage of all the free stuff they can get. For example, when I had to fly to a wedding in an obscure town in Wisconsin, I redeemed my credit card’s travel reward to save more than $600 on the flight. 

That’s an easy example, but there are even more rewards: Did you know that credit cards automatically give you amazing consumer protection? Here are a few examples you might not know about:

Automatic warranty doubling: Most cards extend the warranty on your purchases. So if you buy an iPhone and it breaks after Apple’s warranty expires, your credit card will still cover it up to an additional year. This is true for nearly every credit card for nearly every purchase, automatically.

■ Car rental insurance: If you rent a car, don’t let them sell you on getting the extra collision insurance. It’s completely worthless! You already have coverage through your existing car insurance, plus your credit card will usually back you up to $50,000.

■ Trip-cancellation insurance: If you book tickets for a vacation and then get sick and can’t travel, your airline will charge you hefty fees to rebook your ticket. Just call your credit card and ask for the trip-cancellation insurance to kick in, and they’ll cover those change fees—usually between $3,000 to $10,000 per trip.

■ Concierge services: When I couldn’t find LA Philharmonic tickets, I called my credit card and asked the concierge to try to find some. He called me back in two days with tickets. They charged me (a lot, actually), but he was able to get them when nobody else could.

Most important, your credit card automatically tracks your spending, making it easy for software to download and categorize your expenses. For these reasons, I put almost all my purchases on a credit card—especially the large ones.

Your key takeaway: Call your credit card company and ask them to send you a full list of all their rewards. Then use them!

Frequently Asked Questions About Credit Card Rules

What is the rule of using a credit card?

Pay your bill ON TIME. And pay it in FULL! Late payments and left over balances appear on your credit report and can be a big red flag to lenders. Paying late means you’ll owe fees and paying only part of your bill means paying interest.

What is the 15 30 rule for credit cards?

The 15/30 credit card payment is a credit hack that involves making two credit card payments per month. Make one payment 15 days before your statement date and a second one three days before it’s due date. It will help keep your utilization low and allow you to pay your bill on time with ease.

What is the golden rule of credit cards?

Pay your bill IN FULL every time. You’ll reduce the consequences of interest and credit damage. It’s much better to take on other types of personal debt if you want to make a big purchase that you’ll need to pay off over time. Paying with a credit card for these types of purchases usually will harm your credit over time.

How do beginners use credit cards?

  1. Set a spending limit for yourself
  2. Keep track of your balance
  3. Keep track of your account statement frequently
  4. Use as little credit as possible (30% or less is better)
  5. Set up automatic payments
  6. Pay your bill in full each month
  7. Pay your bill on time
  8. Use your Rewards
  9. Use the Secret Perks