FEB 14, 2011
Credit cards are a great financial tool, though some of us have learned the hard way that they carry a certain risk. Theres more ways than one you can misuse a credit card and end up paying for it later. Its so easy to reach for a credit card to temporarily solve financial problems or to fill out the multiple applications that show up in your mailbox. You could charge too much and end up paying high interest rates and other fees. Either way, credit card mistakes more than drain your bank account they can drain your credit score if youre not careful.
Here you will learn easy ways to avoid making the most common credit card mistakes.
1. Limit the number of credit cards you have.
A single credit card is really all you need to meet your credit needs. Having more than one makes it easier to overspend, which causes greater credit risk over the long run. If you have multiple credit cards or store cards, even ones with zero balances, your credit report may look risky to a lender. They may consider the worst case scenario — what would happen if you reached the limit on all of your accounts.
2. Understand what an introductory rate really is.
Low introductory rates are designed to entice you to get the card. Be aware though, that once the introductory period is over, creditors can raise the rate as much as 20 percent.
3. Carefully read the fine print.
Most of the terms and conditions, especially information about interest rates, cash advances, balance transfer fees, inactivity fees, late payments, grace periods, and specific limitations appear in fine print at the end of an application or brochure.
4. Pay off your balance each month.
If you make only the minimum payment each month, your balance continues to accrue interest, increasing the amount you owe and making it even more difficult to completely pay off.
5. Pay your bill on time.
If you make late payments, youll incur a costly late-payment fee, sometimes even more than your minimum payment. Also, late payments appear in your credit report, making you look like a poor credit risk, and damaging your credit score. A history of late payments can make it difficult to get a mortgage or a car loan at a good rate.
6. Shop for the best rate.
Pay attention to the rate on unsolicited offers. If youre already in financial trouble, youre unlikely to get the most favorable rates or terms. Ask yourself if you really need a credit card (or another one), and then comparison shop for a good rate and low fees.
7. Review your statement every month.
Immediately validate the charges on your statement. ID theft is becoming common, and if you wait too long to dispute a charge, youll be less likely to get it reversed. Looking at your bill right away also makes it more likely youll pay it promptly.
8. Stay well under your credit limit.
Over-the-limit charges can be high, an like late payments, can adversely affect your credit rating. They suggest to lenders that you dont know your financial limits and cant be trusted with the credit youve already been given. You could be penalized with card restrictions, extra fees, or even cancellation.
9. Limit the number of times you switch cards to get a better rate.
Many credit card companies offer free balance transfers for a great initial rate. Keep in mind that switching credit card issuers can be a red flag to lenders. All the account openings and closings look suspicious on your credit history.
10. Use credit cards for emergencies only. Avoid cash advances.
Remember credit cards are not supplemental income; theyre only a convenience. Cash advances carry higher interest rates than purchases. If you cant pay your credit purchases back quickly, you shouldnt use a credit card. Its only likely to get you deeper and deeper into debt.