Most popular credit card mistakes

Monday, August 13th, 2012

Everybody makes mistakes whether due to confusion or carelessness. And credit card mistakes are the worst and too common ones. Even a tiny slip-up may cause tremendous fallout which can result in lower credit limits, higher interest rates and unwanted fees or may affect your credit score. It’s up to you to use your credit wisely or not.

Here are common credit card mistakes:

Late bills payments

Late payments are the worst irreverence you can show when it comes to credit cards. The consequences may follow – leveled-up interest rates and lowered credit scores.

Try to pay your bills on time regardless the mood or weather forecast. The CARD Act requires banks to mail your statement at least 21 days before the due date. So mark your calendar and never be late.

Clumsy balance transfers

Moving debt from your unfair high-interest-rate card to one with a tasty low introductory rate can make financial sense, but only if you read the fine print carefully. Don’t ignore balance-transfer rules and try to understand every single comma; otherwise you could end up owing even more.

Paying just minimum

Most of credit card holders know that they should pay more than the monthly minimum on a credit card bill; it seems that nobody cares about it nowadays though. Today your monthly statement includes information on how long it will take to pay off your balance by making only minimum payments, as well as how much you would need to pay to erase your debt in three years. So think before you decide to spend additional $50 in a restaurant.

Overlimiting spendings

You have three cards or just one – it doesn’t matter, keep an eye on your credit utilization ratio (the proportion of your total available credit you use each month). In general it is recommended to spend no more than 30% of your revolving credit card limits.

Also be sure to use all of your cards periodically. If a card is inactive for a long period, the lender may close the account. That would result in unexpected changes in your credit utilization ratio, which could drag down your credit rating.

Monthly statements ignoring

As you received your monthly credit card statement, take a few minutes to look it over. Mistakes happen, so be sure there are no erroneous charges. The sudden appearance of unfamiliar charges can also mean identity theft. Call your lender immediately to report discrepancies.

Accumulating foreign transaction fees

Nobody wants to see a credit card statement full of foreign transaction fees after returning from a vocation trip. Most credit cards have these fees, which often run as high as 5%, including the 1% that Visa and MasterCard charge on foreign transactions.

Foreign transaction fees vary by credit card, it worth searching for a card that charges no transaction fee and use that card for purchases while abroad.

Taking cash advances

Unless it is an emergency, do not use your credit card to get a cash advance. The interest charges on cash advance are really high and probably you won’t avoid an upfront fee for the privilege. The longer it takes to repay a cash advance, the more you’ll have to pay. Try to explore the ways to get extra cash without lightening your credit card.

Paying annual fees

Avoid annual fees whenever possible. Usually banks charge these fees if credit cards offer rewards programs, premium services and if a credit card holder is deemed a risky borrower. The first two are matters of choice. If the premium services are worth the price to you, pay for the privileges. But if rewards are what you want, make sure the rewards’ value surpasses the annual fee. Being a consumer of doubtful creditworthiness is a sticky situation, but you can always try to shop around for a card with lower fees.

Hunting teaser rates

Before you apply for a new credit card with a 0% introductory APR, make sure you understand how long the promotional period lasts and how high your rate will climb after the offer expires. Do not apply repeatedly for promotional offers; think how they affect your credit score. Too many opened credit cards and too many closed as well may lower your scores. Constantly closing and opening new accounts just to take advantage of promotional offers acts like a signal to the credit-reporting agencies: they may think you can’t keep account in good standing for a long period of time.

Paying no attention to credit score

The best way to pay less on your credit cards is to improve your credit score. But if you don’t understand how the whole system of credit scoring works or you neglect your scores at all, that can be very hard to do. Do some homework, try to know everything about credit scores and what they are made of. If you understand the system of scoring and if you check your report for errors regularly, it will be easier to understand some peculiarities of relationship between you and credit card issuer.

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