Credit cards can be extremely helpful if used responsibly, but they can also hurt you if you don’t use them right. Wondering how you can use your credit card better? Check out this list of mistakes to avoid and what to do instead.
1. Not reading the fine print.
A lot of issues stem from not reading or understanding your credit card agreement. For example, if you try transferring you balance to another card without understanding the rules, you could end up owing more.
Instead: Resist the urge to automatically scroll to the bottom of the page and agree to your card’s terms. Make sure you know what you’re getting yourself into, from your card’s rewards program to fees.
2. Not using it.
Credit card companies don’t make as much money if consumers don’t use their cards. If you haven’t used your credit card in awhile, your credit card issuer could deem your card inactive and close your account, which could negatively impact your credit.
Instead: If you are reluctant to use credit but want to keep your card open, try placing a small recurring fee on it and paying it off immediately each time. Alternatively, swipe it every few months for an item you need to buy, like groceries.
3. Not paying on time.
Not paying your bills on time doesn’t just severely lower your credit score – it could also cost you monetarily, as your credit card provider may penalize you by charging a late fee and raising your interest rates.
Instead: If you keep forgetting to make payments, set up as many reminders as necessary to ensure your bills get paid. If you can’t pay on time because you don’t have enough money, try scrutinizing your budget to see where you can cut back and asking for a grace period, changing the due date or reduced minimum payment. Your credit card company may understand if you demonstrate that you’re working to remedy the situation.
4. Only making the minimum payment.
Simply put, paying the minimum each month could cost you a lot of money and take forever to pay off. Say you have a credit card with a $1,000 balance and a 14.95% interest rate. According to Credit Karma’s debt repayment calculator, if you only paid $25 a month, it could cost you an estimated $393 in interest and take you an astonishing 56 months to pay off.
Instead: Rethink what you pay monthly. If you need convincing to pay more, just take a look at your credit card statement – it should tell you how much it will cost you if you only pay the minimum.
5. Using all the credit you’re granted.
Excessively swiping your card isn’t just bad news for your wallet – it could also hurt your credit score. Many scoring models factor in how much of your credit limit you’re using because the more credit you use, the more likely you may not be able to pay everything off.
Instead: Monitor your utilization rate and make sure it never gets too high. A good rule of thumb is to aim for a rate under 30 percent. However, note that this doesn’t mean you have to keep a balance on your cards!
6. Taking cash advances.
Strapped for cash? Avoid using your credit card for cash advances unless it’s an emergency – with sky-high interest rates, upfront fees and no grace period, it could be a costly mistake. While it could be a better option than taking out a dangerous loan, like a payday, pawnshop or car title loan it’s still best to avoid if possible.
Instead: Consider other options, like applying for a short-term loan product, asking for a payday advance or borrowing from a loved one.
7. Closing it (for no good reason).
As mentioned earlier, closing an account, whether done by you or your credit card provider, could negatively impact your score. Unless you dramatically reduce your spending, closing a card (and saying goodbye to that credit limit) will probably increase your credit utilization rate. It could also lower your average age of accounts when the card falls off your credit report.
Instead: Exercise caution when considering closing any cards, as doing so could cause more harm than good.
8. Spending just to earn rewards.
If you have a rewards card, it can be tempting to spend just to earn that 5 percent cash back or those airline miles. However, if you end up buying things you don’t need just for the perks, it could cause you to spend more than you can afford.
Instead: When shopping, question why you’re buying each item and whether you really need everything you’re purchasing. If you don’t have a good reason, consider delaying your purchase. This could help prevent both impulse buys and faulty justification for shopping.
9. Ignoring your monthly statement.
We’re inundated with information these days, but one thing you don’t want to ignore is your monthly statement. Looking over it regularly can help you learn about changes to your interest rates and fees, remind you of your payment due date, help you spot erroneous charges quickly and more.
Instead: Regularly check your accounts, and make sure you know the state of each card you own. It could save you a world of trouble in the future.
10. Carrying a balance to improve your credit.
Carrying a balance on your credit cards because you can’t afford to pay off the entire amount is understandable. Carrying a balance in hopes that it will improve your credit score is a huge mistake and one of the biggest credit myths out there. You don’t need to carry a balance to build credit – the balance reported to the credit bureaus is from your last statement, not what is carried over to the next statement.
Instead: Pay your bills in full as often as possible. You don’t need to pay interest to have a good credit score.
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