When used responsibly, owning a credit card can have some advantages and be extremely helpful. A credit card, when used properly and within reason, can help you build and establish credit so you can one day buy the car or house of your dreams. A credit card can come in handy when an emergency strikes and you don’t have the funds readily available to pay in full to pay to fix the problem. When used irresponsibly, owning a credit card can cause more damage than good. Making common credit card mistakes can prevent you from owning the car or house of your dreams and put you in debt you will be paying off for years.
Avoiding the following twenty credit card mistakes will lead you to a bigger, better, brighter, financially sound future.
1. Getting Too Many Credit Cards
Getting your first credit card can be exciting. Getting credit card offers in the mail every day can also be enticing. Getting too many credit cards makes it easier for you to fall behind and rack up a large debt you will never be able to pay off. Many credit cards have annual fees and that can add up if you have four, five, or even more credit cards. If you have balances on your cards, your interest adds up as well. While having a credit card can help you establish a credit history. having too many credit cards, especially high limit credit cards, can negatively impact your getting approved for a loan or mortgage.
One or two credit cards is generally pretty simple to keep track of and keep the reigns in on your credit. For some very responsible people, four or five different credit cards with low balances that have fantastic rewards may be considered appropriate and okay. You know yourself better than anyone. If you feel you will misuse or abuse your credit cards, stick to just one or two with low limits.
2. Applying For Too Many Cards At Once
Many people don’t realize a credit score inquiry pops up on your credit report each time you apply for a credit report. The occasional inquiry will not negatively affect your credit score. However, several or many inquiries a the same time or in a short period of time can have a negative impact on your credit score. A minor score adjustment may not hurt your score if you already have a great credit score. However, if you have a low credit score already , any reduction can hurt you and make it more difficult to get a loan.
3. Only Paying The Minimum Amount Due
If you only pay the minimum amount due and it’s on time every month, you are not negatively impacting your score. However, you are paying a lot more money out than you should. Interest is added every month on your balance. You are paying month after month on the same balance, just less the small payment you made. Paying only the minimum due on an already large balance will also not lower your balance very much and carrying high credit card balances can negatively affect your credit score.
4. Making Late Payments
Making a late payment is like giving money away. In most cases, it will result in a hefty late fee.In some cases it can result in an increase in your interest rate. It can also be placed on your credit report as a late payment that will negatively affect your credit score. If you have a difficult time remembering to make the payment on time, sign up for auto-payments with your credit card company or a bill-pay system with your bank.
5. Not Reading Your Statements
If you don’t read your credit card statement, you may miss errors or charges that should not be there. Some credit card statements also have advertisements and information on new or free services your credit card company is currently offering. You may also miss announcement about changes to the terms of your credit card.
6. Not Reading The Fine Print
The fine print contains all the little details the credit card companies don’t want you to read. You may see no interest in large letters on the advertisement, but in the fine print is may say no interest for six months, then you interest rate shoots up to 15% or higher. Transferring balances is another fine print issue you need to read about in order to fully understand the rules. You may end up owing more than you would have if you didn’t transfer.
7. Taking Cash Advances
You should only take a cash advance from your credit card in an extreme emergency situation. Most times, a cash advance can result in upfront fees, no grace period, and sky-high interest rates. It can end up costing you a lot more than you took out. If possible, you may want to look into other options, such as a small personal loan if you are strapped for cash.
8. Not Understanding Introductory Rates
This credit card mistake goes hand in hand with the fine print one. Often, a credit card company will offer you an introductory insterest rate or promotional period for transferring balances. These are limited time offers. In many cases, if you do not pay the balance off before the introductory period ends, you will have to pay interest going back to the day of the purchase. Also, if you have a zero interest rate, you may think you will have pretty decent interest rate once the promotional period is over. A lot of times, the interest rate can be 15%, 18, even 20%.
9. Choosing a Card For The Wrong Reason
There are amany good reasons to get a credit card. However, there are also wrong reasons. Don’t get a credit card just because of the promotional period or the great rewards without reading the fine print. The credit card may seem attractive in the beginning because you are getting something out of it, such as no interest, a rebate, or a special reward. However, once the promotional period is over, you are stuck with the card and the balance that it on it without those fancy rewards and promotions.
10. Exceeding Your Credit Limit
If you read your credit statement every month, you will be able to avoid exceeding the limit on your credit card. Even better, if you use your credit card company’s website, mobile site or app, you can check your balance right before or at the time of making a purchase in order to confirm you have enough funds available to make the purchase. Over the limit fees are expensive and cost you even more money. Having your credit card be rejected while on the line of a busy store can be embarrassing, especially if people that know you are around.
11. Using All Your Credit
If you use all your credit, you will not have any credit left to use during an emergency. Maxing out your credit card can also negatively affect your chances of taking out a loan. Your credit score takes into account how much of your credit you are using and if you can make payments. For optimal credit, you want to try to stay under a 30% utilization rate with your credit cards.
12. Not Using It
Not using your credit card is a good way to stay out of debt. However, it is also an excellent way to not build your credit history. When determining your loan eligibility, banks want to see that you have a strong history of borrowing money then paying it back. That’s the reason that having a credit card can be good for your credit. It helps you establish a strong credit history and makes creditors more likely to loan you money because they know you will pay them back. Not using your credit card can also render your account inactive and result in a closed account, which has a negative impact on our credit score.
13. Buying Things You Don’t Need
Many people are more likely to whip out their credit card to make a purchase than to pay with cash. This leads to more impulse buying and spending money on things you don’t need. If you are not willing to spend your hard earned cash on it, don’t buy it. If you are not sure, don’t buy it. Wait a few days and if you still want it, then maybe get it. Remember, you still have to pay for purchases made on your credit card and you will end up paying even more than the cost of the purchase through interest rates.
14. Closing Your Account
Closing your credit card account without a good reason can be worse for you credit than keeping it open. An open credit card with no balance or with a low balance will positively affect your credit. Closing that account will reduce your credit utilization rate and lower the average age of accounts on your credit report. Remember, you need a credit history in order to be eligible for a car, home, or large personal loan. f you close your accounts, you are damaging your credit history.
15. Spending Only To Earn Rewards
A lot of credit cards now offer rewards. That’s the credit card company’s way of getting you to use their card more. Using these card can be beneficial if used for things you need. However, you should not make purchases on your credit card that you don’t need just to get the reward. The purchase can end up costing you even more than the reward after interest charges.
16. Avoiding Credit Cards Completely
If you never get a credit card, it will be more difficult to build a credit history. I am not saying that is cannot be done, and there are some people that just cannot control themselves and should not have a credit card. However, if you are not one of those people, you should not completely avoid credit cards. Safe, responsible credit card use can be beneficial to your credit score and credit history.
17. Not Shopping Around
Not all credit cards are created equal. Every credit card is different. Some credit cards have rewards, some have low interest rates, some have introductory or promotional periods, and some have annual fees. You want to consider the interest rate on a credit card before you accept it. Shop around first to see if other similar cards have the same or better interest rates. Take into account your lifestyle as well. If you travel often, you may want to consider a card that you will earn frequent flyer miles with, r a cash-back option for frequent shoppers.
18. Loaning Your Credit Card
Loaning your credit card out to someone else is the worst mistake you can make. Once you hand your card over to someone else, you have no control over how much money they spend. You become responsible for paying off the balance, even if they don;t give you the money back. I am not saying never help someone in need out, I am just saying don’t give them your credit card. At one time or another, we have all run into a bit of money trouble and had to borrow money from a friend. Buying something for someone else and you using your credit card is one thing. Letting them use your card and expecting them to pay you back in the future is another. You want to be careful if they use your credit card for monthly recurring expenses as well because every month that money will be deducted.
19. Letting Your Credit Card Get Charged Off
The worst credit card related issue that can happen on your credit report is a charge-off, This takes seven years to come off your credit report and can prevent you from taking out a loan or getting other credit cards. A charge-off tells creditors that you don’t make your payments. Even having late payments or a delinquent account that you eventually paid off looks better than a charge-off.
20. Not Reporting A Lost Or Stolen Credit Card Right Away
The sooner you report a lost of stolen credit card, the less time a thief has to rack charges up on your credit card. Reporting a lost or stolen credit card before any fraudulent charges are made will make you not responsible for those charges. Make sure you watch your credit card statement carefully for at least a few months after you card is lost or stolen.