7 Deadly Credit Card Sins to Avoid
A credit card can be either a blessing or a problem, depending on how well you handle it. If you are able to make your monthly payments or, better yet, pay off your entire balance every month, a credit card can be an effective means of making major purchases. If you struggle to make payments and end up treading water because you cannot afford to make more than your minimum payment, a credit card can quickly turn into a nightmare. To ensure that your debt does not get out of control, make sure that you avoid some major credit card sins.
Having Too Much Credit
Once you are approved for a credit card, it can be tempting to apply for another one. After all, the more credit cards you have, the more purchasing power you have. However, you should only apply for credit when you need it and avoid applying for multiple credit cards at once, as this will not only help keep your spending under control, but also prevent you from having too many credit inquiries on your credit report.
Taking Out Credit Card Cash Advances
If you find yourself short on cash, it might be tempting to take out a cash advance on your credit card. This is one way to get into trouble, as cash advances come with high interest rates. Many credit cards charge close to 25 percent interest on cash advances and start compounding it immediately. If you must use your credit card, swipe it, rather than taking out an advance.
Going Too Close to Your Credit Limit
When a credit card company grants you a certain credit limit, you might feel the immediate need to spend that money. This is a major sin because, first of all, it makes it less likely that you will be able to repay this money. In addition, using all of your credit leaves a negative mark on your credit score, which makes it harder to get more credit later.
Closing Your Credit Cards
If you have run into credit problems in the past, you might be tempted to cancel all of your credit cards in a hurry. The truth, however, is that this is the worst thing that you can do for your credit score. Closing these accounts has a negative impact on your credit utilization ability, so it is best to instead just stop using the cards for a while.
Ignoring Monthly Statements
Many people nowadays set up an automatic bill pay on their credit cards, which pays the balance out of their bank account. This can lead to these people ignoring their credit card statements, which is a huge mistake. Fraudulent credit card charges can occur at any time, and if you do not look at your card account balance carefully, they could end up seriously impacting you.
Applying for Specialty Cards
Just because you have an opportunity to apply for a card does not necessarily mean that you should do so. For example, you might have a family member with a card that gets them cash back at the end of every month, and you could perhaps decide that you want this type of card for yourself. What you might not realize is that such a card will often come with higher yearly fees, which will cost you more money than you get back. You should always only apply for cards that match your lifestyle needs, rather than cards that work for others.
Ignoring Your Credit Report
You might think that making your monthly credit card payments automatically will give you a good credit score, but the truth is that many other factors go into this rating. Credit reports are based on a number of factors and sometimes include mistakes, so it is important to check your score periodically. You are entitled to one free report annually, and it is a good idea to take advantage of this.