Credit cards are being marketed by just about every major retailer, financial institution, supermarket and small and large business entity in America, from the big guns like Citi to Zappos the online shoes store. With hundreds of opportunities to borrow, it’s no wonder so many people find themselves in credit trouble. But it doesn’t have to be that way. By avoiding these common mistakes, you can enjoy the convenience and benefits of using a credit card without having to deal with the pitfalls that many people experience.
Neglecting the Fine Print
Opening a new credit card account is an agreement just like the ones you sign to buy a car or secure a mortgage. And just like any other legal agreement you sign on to, the details are found in the small print. But for most cardholders, their first mistake in using a credit card is in failing to read the terms and conditions of the agreement.
This is where the fees and penalties are spelled out so that there will be no reason for surprises down the road. While most people may know these particulars of their agreement, many do not understand the way an introductory offer works and make the wrong assumption that the great deal they signed on for is ongoing. It’s not!! Be sure you know when the intro period will be over and how much the standard interest rate will be. Also, many may not realize that the fine print includes services that will automatically go into effect unless they opt out.
Too Many Active Accounts with Balances
While it may be true that having a number of credit card accounts will be beneficial to your credit score by demonstrating your ability to manage multiple accounts; it takes discipline to be able to handle them without getting into trouble. And for people who are hoping to earn more rewards by using multiple cards, it’s just not worth the danger; in addition to more debt, miss one payment and you may be saying bye-bye to that reward anyway.
One way to maximize the benefit without going into deeper debt is to use one main card with a reasonable credit limit and the others only every six months on a purchase that can be paid off immediately. Your score will benefit and you won’t have to worry about juggling multiple payments or balances. Keeping your credit card balance at zero or at a reasonable amount will ensure your ability to get out from under it quickly, if need be.
Minimum, Missed or Late Payments
This is the lure that most people get snagged on when credit cards become an issue. The low monthly payment is appealing when compared to all the things they can buy for that amount of debt. But the real danger is revealed when the calculations are done and you realize that it will take ten or fifteen years to pay off when you’re only sending in the minimum required, and to add insult to injury, you’ll have repaid the debt many times over in interest payments.
Make use of an online payment calculator to show how long it will take to pay off your credit card and how much interest you’ll pay, if you only make the minimum monthly payment.
Late and missed payments are subject to higher interest rates and penalty fees – profitable for the credit card company, painful for the cardholder. In addition, these actions will show up on your credit report damaging your credit score and making it more difficult to get loans with the best terms in the future. One safeguard is to set up an automatic payment with your bank, making sure the time and date work well with your account status; make sure you know the bank’s payment policy when the due date falls on a weekend or holiday.
Using Convenience Checks
You need quick cash and a convenience check for a cash advance on your credit card account seems like an easy way to get what you need. But the downside is an exorbitantly high interest rate and a fee charged for that ease of access cash that you so desperately needed. Using your credit card to cover your day-to-day cash needs is a very costly mistake.
Overseeing the activity on your credit card is vital for responsible management. Review every account statement closely to be sure the transactions are all valid. If you find errors or fraudulent entries, call your credit card issuer immediately to begin the process of resolving the problem. Request your free credit score to see how well you’re doing in managing your credit and finances.
About The Author: Noreen Ruth writes for ASAP credit card blog and several popular finance websites. She is interested in educating consumers about using credit responsibly and about legislative action that will affect their ability to borrow the money they need. She has contributed hundreds of articles to various online sites that provide content to educate consumers on comparing credit cards, debt relief services, loans and other finance related topics.