I talked about some of the benefits of credit cards in a recent post, but now I want to go over the dangers. Credit cards have their place and can make life simpler and give you great rewards if you use them correctly. Just be sure that you are disciplined and know the credit card pitfalls so you can avoid them. Here are 10 credit card habits that can be bad for your pocketbook.
1. Charging Everything to Your Card
I will be the first to admit that shopping with a credit card is by far the easiest way, but it’s also the most dangerous. Whenever you are shocked by your bills at the end of the month it’s almost always because you spent more money than you expected or had budgeted. Be sure to have a budget, and know exactly what is going on the credit card, and keep track of your expenses. That way at the end of the month there will be no surprises when it comes time to pay off the balance. Charging everything to your card each month can work for some, but not if you aren’t careful.
2. Late Payments
Or, the credit card trap! You don’t need to be spending extra money for no reason, but any time you skip a payment or forget to pay it on time that is exactly what you are doing. Don’t allow the credit card companies to charge you interest. It’s a good idea to set reminders, or set up automatic bill pay so that you can never miss a payment by mistake. Not only are you charged a late charge, and interest if not paid on time, but most credit card companies will raise the interest rate on your card if you are late making payments. It will continue to cost you more and more money. Be punctual with those payments!
3. Having Too Many Credit Card Accounts
If you have too many open credit card accounts you may forget which cards have a balance on them, or what you need to pay off. Too many open lines of credit can also harm your credit. Credit cards are a great way to build your credit score and history, but be selective in the cards that you have. For best results, use them to show activity on them, and then pay them off.
4. Not Reading Your Statements
Be on top of that statement and know exactly what every charge is for. This way you can easily detect if there are any mistakes, or expenses that you didn’t make. I have been double charged by businesses and also had fraudulent activity on my credit cards in the past, so it is important to watch those statements. It will also help you be aware of your spending and know exactly where your money is going.
5. Making Only Minimum Payments
If you are only making minimum payments on your credit card, you may never get them paid off. Credit cards are designed to make the CREDITOR a lot of money, not you. If you are only paying the minimum payment, and consistently using your credit card, it may be hard to climb out of your credit card hole. Be careful to pay off the balances each month, if you can. If you can’t, try to budget how much extra you can pay each month to bring the balance down as quickly as possible. You will pay a lot more interest than you should if you just pay minimum payments each month.
6. Using Your Credit Card for Unnecessary Purchases
Your credit card should be used wisely and when needed not for your random “fun” purchases. The best way to keep unnecessary purchases under control is to decide how much each month can be used for “extras” then take out that amount in cash. That way you know that you aren’t spending too much money on things that you really didn’t need to buy.
7. Buying Things You Can’t Afford
This can go along with #6, but is a little different. It is probably the worst credit card habit. If you don’t have the money…DON’T BUY IT. No questions asked. It is too easy to charge a big amount to your credit card, and think “I’ll pay it off eventually”. This is the credit trap. You don’t want to rack up credit card debt this way…especially if a real emergency happens, such as medical bills, and then you really have no way out.
8. Maxing Out a Credit Card
Believe it or not, having maxed out credit cards hurts your credit score. The best way to keep your credit score high, is to never let the balance stay over half of the available credit limit. Keep your debt to available credit ratio at less than 50% or it can negatively affect your credit score. You always want to have more available to you than what you owe.
9. Using it for a Cash Advance
Are you low on cash? Taking a cash advance from a credit card may be tempting, but it is very costly. Be sure to read the terms and conditions. In most cases, there is a cash advance fee, and a high interest rate for cash advances. Also, the cash advance interest rate begins accruing immediately (daily), and not after the statement. It is expensive money, so unless you have no other options, cash advances are not a “smart money move.”
10. Letting Other People Use Your Credit Cards
Whether it’s family or friends you trust every transaction is being linked to you, so if for whatever reason they can’t pay you back that amount in time then it will be shown on YOUR credit report and history. Be careful and don’t trust others with your credit.