Actually, credit cards are not that bad, but it also has to do with you as the user and how you handle your virtually endless spending limit. If you are able to keep spending under control, you can take advantage of the many pros to using a credit card, of which it could be argued to be used for every purchase. Using instead of a debit will help avoid your bank account getting depleted during a fraud attack, you can get a bit of a grace period by charging this month and paying back next month, and probably the best of all, earning rewards on the purchases that you make. By missing out on what credit cards can offer by making credit card mistakes of your own, you are risking financial misfortune.
Not Checking Your Credit Report
These days you just never know who can get your information. Whether you are swiping your card at the gas pump or you leave your card out too long when paying a bar tab, someone can grab your card info and fraudulent charges can appear almost immediately. Even retail stores can get compromised, sending your data in the wrong hand, which is why it’s a good idea to check your credit report at least once a year when you can pull for free, and then at least monitor your score that’s listed on your monthly credit card statements so you can make sure it’s rising instead of falling.
Probably the most important piece to your credit score is your payment history, which is why you need to make sure all of your payment obligations are made on time. While you will not get hit with a late on your credit report until it’s at least thirty days late, but even a day late can cause a late fee or a spike in interest rate, so scheduling automated payment could be worth it if you’re not always on top of when payments are due.
Not Paying Off the Full Statement Balance
With a credit card you can charge up as much as you want throughout the month and don’t have to worry about paying back until the next month, but if you’re unable to pay the full statement balance by the due date, interest will begin to kick in and depending on the card could be as much as 15% APR, so as the balance starts to grow, the monthly payments will begin to incorporate plenty of interest. Probably the hardest part of having a credit card is spending what you can afford, so that will be key in ensuring your debt does not spiral out of control.
Only Paying the Minimum
If you do carryover a balance month after month and are paying interest, it will take the largest payments you can afford until the balance is finally gone. Only paying the minimum will satisfy the account for the month but will do little to chip away at the balance. A lot of time the minimum payment will just cover the interest and maybe a few dollars towards the rest, for good measure. As you continue to have that outstanding debt, that monthly payment can begin to count towards your budget and possibly throw that out of whack.
Closing an Account with Zero Balance
It’s definitely an accomplishment to payoff credit card debt, especially if it has been years in the making. When you do finally rid yourself of the balance the first reaction may be to close the account so you don’t make the same mistakes, but that could hurt your score, especially if you have balances on other cards, as it reduces your available credit. If you don’t want to use the card any longer you can just cut up the card but still keep the account open. That way you can resist the spending spree but still keep it open for the sake of your credit score.
Opening Too Many Applications
Although it’s a very small factor in your credit score, but you never know when you’re on the fine line between ‘good’ and ‘excellent’ credit, so those points could come in handy if you’re looking to get the best interest rate on the market and save money each month compared to what you would be paying otherwise. By limiting your credit applications, you can save the points subtraction and save for when you really need to use, like applying for the best rewards credit card that’s out there and earn free money.