Credit cards can truly be like a double-edged sword. Used responsibly, they can be a valuable tool in building a solid credit history. But used haphazardly, they can quickly lead to a path of spiraling debt. Know these credit card sins and avoid them whenever possible!
1) Never checking your credit report
As a consumer, you are eligible to receive a free copy of your credit report every year from each of the three major credit reporting bureaus – Experian, Equifax, and Transunion. Mistakes do happen so it’s important to review your credit report and dispute any errors you may find.
2) Taking cash advances
Many credit card users have the mistaken idea that taking a cash advance is just like making a purchase. Wrong! First off, you can expect to pay a cash advance fee of somewhere between 2% and 5% plus an ATM fee on whatever amount you take. In addition, there is usually no grace period for a cash advance so the transaction begins accumulating interest charges as soon as it is processed. And to make matters even worse, credit card issuers typically charge a higher APR on cash advances than on purchases.
3) Making late payments
Your mantra needs to be “never miss a payment due date”. Many people don’t realize that just one late payment can lower your credit score by as much as 100 points. Plus you will incur a hefty late fee and most likely get stuck with a very high penalty interest rate (sometimes as much as 30%). More bad news- your credit card issuer can apply that penalty interest rate for as long as they want. There are no guarantees as to when or if they will remove it.
4) Applying for numerous cards
Thinking of applying for a lot of cards? Think again. Creditors generally regard excessive hard inquiries on your credit report as a “red flag” that you may be experiencing financial difficulties.
5) Ignoring monthly statements
It’s important to check your statements on a regular basis. Again, mistakes can happen and you want to be vigilant when it comes to possible credit card fraud. With online account access and smart phone apps it’s easy to check your accounts more often- even daily. You’re not liable for fraudulent transactions on your credit card as long as you report them within 60 days but why wait that long? Keep a close eye on your financial accounts.
6) Applying for a card solely for a promotional offer
Anyone who routinely shops at a retail/department store knows that the checkout process will include a sales pitch to sign up for the store credit card (so that you can save a certain percentage on your total purchase). Just politely decline! The interest rates and fees associated with store cards are usually high so there really is no benefit to be had. As far as rewards credit cards, make certain that your lifestyle and spending habits align with the type of rewards offered. If you rarely travel you probably don’t need to be racking up miles.
7) Not reading the fine print
Do credit cards come with a lot of terms and conditions? You bet they do. And most credit card issuers are counting on the fact that most people casually look over the “fine print” without paying much attention. Your APR is listed here as well as fees and penalties. If it’s a rewards credit card, the rules for earning and redeeming points/miles/cash back are all explained in this section. Exclusions and limitations are noted. Take the time to read and fully understand what you are legally committing to before signing on the dotted line.