Credit cards are a great invention. They are convenient when you do not have cash on you, especially when traveling. They are an absolute must if you are shopping online. Credit cards can build up your credit score or they can destroy it. Here are 8 common mistakes that people make with their credit cards. Avoid these, and your credit card experience will be enjoyable and not a nightmare.
- Ignoring your statements. Sometimes life can become overwhelming and you simply run out of time to open the mail. Or the pressure of accumulating debt can make you run away from the mail. In either case, try to overcome the obstacles and open your credit card billing statements as soon as they arrive. There are very important reasons to do so: (a) there could be an error or fraudulent activity which needs to be reported immediately; (b) you will see the due date; (c) you will be reminded of the balance due and how much is remaining in available credit—prodding you hopefully, to curtail a bit on the spending; and (d) you will find out about special offers or changes to the terms of your credit card.
- Not reading the fine print. Credit card offers seem to surround us. They arrive via email, text messages and of course the marketers roaming supermarkets and shopping malls. The common pitch is that the process is simple and fast, and it is. But you can slow down a little bit. The law requires that the issuer’s policies regarding interest rate, late fees, and fees for going over your limit and for cash advances must be provided to you. Be sure to read all the details of the terms so that you do not have any surprises.
- Making only the minimum payment. If you are stretched, it may seem that the best thing to do is at least make the minimum payment and keep your account current. However, if this becomes a regular habit, you will find yourself paying so much interest that whatever you purchased will cost you twice as much. Making only the minimum payment also sets off a red flag for the credit card carrier, alerting them to the possibility that you may not be able to make payments at all.
- Paying late. Paying your credit card bill late will cause an increase in your interest rate, plus you will incur additional fees and penalties. Consistent late payments will be reported to credit agencies, harming your credit score.
- Maxing out your credit card. Contrary to popular opinion, charging to the max on your credit card will not help your credit score. Part of your FICO is based on how much of your available credit you are using. Using all of it will lower your score. At the most, you should not use more than 30% of your available credit and if you want to improve your credit score, try to keep it to 10%. Additionally, if you have maxed out your credit card(s), they will not be available to you in case of an emergency.
- Cash advances. It is tempting to use your credit card to access quick cash, but the interest rate on a cash advance is much higher than on items purchased. According to a creditcards.com survey conducted this past spring, the average interest rate on cash advances is 23.53%, whereas on purchases the average is around 8.54%. If you need cash to cover an expense for which you have not saved, it is wiser to utilize a marketplace lending company, such as peer-to-peer.
- Taking too long to report a stolen or missing credit card. The moment you discover that your credit card is missing, call to your credit card company. Waiting translates to money lost. The longer the thief has before your credit card is reported, the more purchases he can make. If you file a report before the card is used, you will not be held liable for subsequent charges.
- Using your card when traveling abroad. A credit card is the best way to travel abroad, far superior to carrying cash. However, the foreign transaction fees on your purchases can be as much as 4%, meaning that when you return home, you will be facing a much higher bill than you anticipated. If you do not already have one, apply for a credit card with a 0% foreign transaction fee.
