Credit cards are often vilified for the enticing ease with which you can get them, and the high interest rates you pay. However, in some cases you really do bring your problems on yourself. While credit cards can offer helpful rewards and provide you with a valuable financial tool, their misuse can end in heartache and large amounts of debt. Here are 10 of the worst credit card mistakes you can make.
1. Applying For Lots of Credit Cards
One recipe for disaster is applying for more cards than you need. While there are some that argue that one card is more than you need, other financial experts suggest that having one or two can be useful when it comes to building a good credit score, and having something on hand to make payments with if you are in a bind and unable to access your emergency fund.
However, lots applications for credit can be a red flag and damage your credit score. This can limit your ability to get good rates on home and auto loans down the road. Instead of applying for every card you see, comparison shop for credit cards, and choose a card that is likely to suit your needs. When you get that card, use it responsibly before you consider applying for another credit card.
2. Too Many Department Store Cards
One of the subtlest items influencing your credit score is the department store credit card. These are not considered as desirable as major bank credit cards. Plus, the interest rates can be quite high, and you end up with few rewards. Even if you apply for one to get a promotional discount, it can be trouble. Paying off the account and then canceling the card can ding your credit score, since you are reducing your available credit. Carefully consider why you are getting the card, and think about how often you shop at the store. If you are a loyal customer, and the rewards are worth it, you might be okay. But avoid filling your wallet with department store and retailer cards.
3. Overlooking Introductory Terms
Many people apply for credit cards for the low introductory rate, and are unpleasantly surprised when it comes to an end. Read the fine print so that you know when the intro period will end, and be aware that the end of the period could mean a rather high interest rate on balances you have accrued during the intro period. If you transfer a balance for the intro rate, try to create a plan to pay off the balance before the introductory period ends. Also, realize that a late payment or going over the limit can mean an immediate end to the introductory interest rate.
4. Maxing Out Your Credit Card
Using the entire available balance on your credit card can result in a number of costly problems. Interest charges can put you over your limit, resulting in fees and a newer, much higher interest rate. Additionally, if you do not have any room on your credit card it can mean a lower credit score, since you are using up more of your available credit.
5. Paying Late
Irresponsible credit card behaviors always cost you. When your payment is late, you are charged fees. If you are close to your limit, this late payment fee can put you over the limit, resulting in another fee. And, of course, you could end up with a default interest rate as high as 29.99%. Remember that credit card issuers count the payment when it is received, and not when you send it. It is a good idea to put a payment in the mail seven to 10 days in advance to ensure that it gets there. Better yet, schedule a payment online with your credit card issuer so that your payment comes out of your checking account the day before it is due.
6. Not Reading Notices from Your Card Issuer
It may look like junk mail, but it could actually be a notice from your credit card issuer. This could be an increase in interest rate, a change to your due date, or a change to fees for balance transfers or cash advances. If you don't read these notices, you might be surprised down the road - and unprepared for the consequences. Make sure you know what is going on with your credit card.
7. Not Keeping Track of Credit Card Spending
Because it isn't coming out of your checking account, you might not feel as though it's necessary to keep track of credit card spending. However, if you are not keeping track, you might spend more than you think. Make a budget and stick with it so that you are never spending more on your credit card than you can pay off each month. Use a ledger or personal finance software to help you keep track of your purchases made with credit cards.
8. Ignoring Your Credit Card Statement
Many people do not really look at their credit card statements. This can be a mistake, though, because it could mean that you miss fraudulent charges. Take the effort to balance your statement, and compare it to your own records of transactions. If you find something that you didn't authorize, you will be able to address the problem immediately when you are top of what is happening on your credit card statement.
9. Co-Signing Someone Else's Credit Card
The Credit CARD Act means that your children can't get credit cards without adequate income until they are 21 - unless they have a co-signer. Or you might have a friend or relative who wants you to co-sign. This is usually a big mistake, since the co-signer becomes responsible for the debt if the borrower defaults. You don't want to be on the hook for someone else's debt.
10. Making Only the Minimum Payment
One of the biggest credit card mistakes you can make is paying only the minimum. The minimum payment is designed to seem affordable to you, while providing the credit card issuer with a longest possible amount of time for you to be making payments. If you only make the minimum payment, it will take you years to pay off your credit, and you could pay three or four times what you originally borrowed.