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The 10 Credit Card Commandments

Behold Thy Credit Card Commandments

A credit card can be a wallet’s worst enemy or a bank account’s best friend, depending on how it is used. But there are definite incentives for cardholders to always be on their best behavior.

“You can improve your credit score and that can help you save significantly on other financing,” says Adrian Nazari, CEO of Credit Sesame, a credit education site. You can also earn rewards that can be put towards future purchases.

Of course, consumers will need to abide by a few simple rules. MainStreet outlines the ten steps that will ensure you don’t take you credit cards in vain.

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Thou Shalt Pay Their Balances Off On Time

Establishing a stellar payment history is the easiest way to make sure your walk amongst the credit elite, so it’s important to, first and foremost, make your monthly payments on time. To ensure each account stays in good-standing, you can set up automatic payments, sign up for email or text alerts or write due dates down on your kitchen calendar.

“You can tie a string to your finger if that helps,” says Bruce McClary, Director of Media Relations for Credit Counseling Solutions. “Do whatever you have to do to get it done.”

Additionally, while meeting monthly minimums in a timely fashion will keep your credit score from taking a nosedive, it is (literally) in your best interest to pay balances off in full.

Otherwise, “you just wind up paying more,”Nazari says.

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Thou Shalt Not Bump Up Against Thy Credit Limit

Payment history isn’t the only major player when it comes to determining creditworthiness. Most scoring models also heavily weigh a person’s credit utilization ratio (essentially how much credit you are using versus how much credit is at your disposal) which is why it’s never a good idea to max out a credit card.

“The idea is to be using under 30% of your credit limit,” says Anisha Sekar, vice president of Credit and Debit Products for NerdWallet, a credit card ranking site. This best practice applies to each individual credit line at your disposal as well as your credit collectively since both are factored into your score.

Keep in mind, the purchases you make each month often count as utilized credit. Issuers typically report balances as they appear on monthly statements. To avoid feeling the effects of a big buy, you may want to pay your bill well before it’s due to appear in your mailbox.

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Thou Shalt Manage Debts Wisely

Of course, there may be instances when you do have to revolve a balance and deal with debts.

“If you have a 0% interest card, this isn’t necessarily a bad thing,” Sekar says, so long as you’re careful.

Make sure you make monthly minimum payments to prevent the account from going delinquent and refrain from letting additional charges pile up against you.

You can find four more simple steps to cutting credit card debt in this MainStreet round up.

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Thou Shalt Know Their Rights

Credit card laws have come a long way over the last few years. The Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, specifically, prevents issuers from raising annual percentage rates (APRs) without giving a 45-day notice and charging more than 25% of the card’s credit limit in fees.  It also made lending to minors much more difficult and requires greater transparency regarding a card’s terms and conditions.

“It’s very important to know your rights,” Nazari says so you’re more apt to spot when someone is infringing on them.

It’s also important to comb through a card’s terms and conditions before applying for the line of credit so you know exactly what it is you are signing up for.

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Thou Shalt Remember to Keep Monitoring Thy Credit

When it comes to credit, what you don’t know can definitely hurt you. As such, it’s important that you monitor your credit score. The Fair Credit Reporting Act entitles everyone to one free credit report a year. However, there are several free services out there that let you check your report (and score) more frequently.

It’s also important to monitor your current card activity online so you catch any fraudulent activity before it finds a way onto your credit report.

“Always check [your bill] against your own records,” McClary says. “There’s no such thing as being too obsessive about it.”

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Thou Shalt Not Kill Their First Credit Card

Getting rid of that credit card you opened up in college may seem like a good idea when you staring at a $1,000 billing statement, but there is at least one good reason not to go ahead and pull the trigger.

“Closing an account affects your credit score in numerous ways,” Sekar says.  For instance, it can negatively skew your credit utilization ratio since the credit limit associated with the card is no longer in play. It can also ultimately effect the age of your credit report as the information on a closed account stops being reported after 10 years.

As such, Sekar suggests holding onto a card that doesn’t have a high annual fee associated with it. If your card does carry a high annual fee, you may want to see if you can downgrade to a one that doesn’t. Many issuers offer no-fee versions of their most popular products. You can also ask them to waive the fee entirely.

“They may do it, especially if you spend a lot of money on that card,” Sekar says.

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Thou Shalt Leverage Thy Rewards Program

Following the first few commandments will certainly help you build a great credit score, but it’s still on you to leverage it.

Consumers who don’t carry a balance should definitely do some research and apply for a good rewards card. This will allow you to earn money back on your purchases and could actually help you save some funds (so long as you resist the urge to overspend!)

To stay out of trouble, pay off purchases as you make them.

“Charge it to the card, earn the rewards, then write the check at the end of the day,” Nazari says.

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Thou Shalt Use Thy Card’s Purchase Protections

Rewards points aren’t the only advantage credit cards hold over other payment methods. Many products carry other perks a consumer can leverage. These include price protection, travel insurance, cell phone replacement and extended warranties.

Additionally, issuers tend to have zero-liability policies in place that protect cardholders from having to foot the bill should a thief hack into their account. Federal laws, incidentally, also offer better protections in instances of fraud when you pay by credit versus debit.

“If you pay in cash, good luck trying to figure out how to protect [your purchase],” Nazari says.

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Thou Shalt Not Take Out Cash Advances

That being said, there are some purchases you should never place on a credit card. Cash advances – using your plastic to get your hands on some paper – rank amongst one of the bigger card offenses you could make, since these purchases aren’t subject to the same terms and conditions as a traditional one.

“It can get people in many ways,” Nazari says. “Some companies charge a transaction fee. Interest will start immediately and [the APR] can be as high as 24% or 25%.”

It’s also good to note cash advances come in many forms. For instance, charging lottery tickets, gambling chips, money orders or traveler’s checks are likely to be subject to the transaction fees and higher interest rates.

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Thou Shalt Not Covet Thy Neighbor’s Credit Card

While it’s certainly true that not all credit cards are created equal, it’s just as important to remember not all cards were designed specifically for you. A  swanky travel rewards card may be the perfect fit for someone who flies enough to justify its $495 fee, but will only be an unnecessary expense for someone who prefers stay-cations.

“Don’t overdo it,” McClary says. “You don’t need to have a credit card for every department store or gas station you go to.”

Instead, choose one or two cards tailored towards your spending habits. For instance, consumers who carry a balance should probably apply for a low-interest credit card, while those who don’t should opt for a rewards program offering 5% back in a category they would spend a lot on anyway. You can check out this MainStreet article to find out what five questions you should be asking yourself before choosing a credit card.

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The Seven Deadly Credit Card Sins

What other “card”-inal offenses do you need to avoid at all costs? Find out in MainStreet’s look at the seven deadly credit card sins.

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