Credit cards can come in handy when consumers need them, but it’s important to avoid the common mistakes most people make when using them.
1- Making the Minimum Payment
Only making the minimum payment on a credit card is a sure way to stay in debt for a long time. Paying the minimum payment means accumulating interest, and that makes the payoff balance much higher.
It’s important to pay off balances in full every statement period to avoid excessive charges. Anyone who can’t pay in full should still come up with a payment plan that has them paying off more than the minimum required each month. Comparing cards and their interest rates before applying for a card will also help consumers find the one that fits their needs and keeps their credit high.
2- Maxing Out a Card
Just because a ton of credit is available does not mean a consumer needs to max out their card. Even if they have a card with a good interest rate, maxing out the card means they likely won’t be able to pay off the balance all at once. This will lead to interest charges and leave them unable to use the card for anything else.
A maxed-out card can also affect credit scores. When carrying a high balance with little credit available, a credit score will go down. There should be a gap between what credit a person has and how much is available to use to help boost a credit score and give plenty of wiggle room in case of an emergency.
3- Making a Late Payment
Late payments can cost consumers extra money. The money for the late fees doesn’t go to paying off credit card debt, so it is just a total loss for the consumer. Late payments will also often make an interest rate on a credit card jump sky high. Set payments to come out automatically to avoid missing payment due dates.
4- Taking Out a Cash Advance
The promise of quick cash makes some people take advantage of the cash advance option on their credit cards. Unfortunately, this is a huge mistake. Cash advances start accruing interest the minute the money is borrowed. They also tend to have a higher interest rate and there is a fee to borrow off the credit card.
An installment loan is a safer bet if a consumer needs immediate cash.
5- Applying for a Ton of Cards
Consumers can get a credit card from a variety of places, and all of them may sound like they offer great deals. However, credit is checked when a person applies for cards. A ton of inquiries on a credit report makes the consumer look like a high-risk candidate and may lower his credit score.
It’s important to choose a quality credit card with a good interest rate, and a pre-qualification form also comes in handy. Pre-qualifying allows a consumer to find out if they are eligible for a card before their credit is run. Don’t apply for a new credit card more than once every 6-8 months, and avoid applying for new cards if possible.
6- Closing a Card
It may seem wise to close down credit card accounts, and it can be advantageous if a consumer has too many. However, shutting down all credit card accounts can lower a consumer’s credit score since it will lessen the amount of time it looks like the consumer has had credit.
7- Ignoring the Statement
Whether a consumer chooses to receive paper or online statements, it’s important for them to review the statements. In fact, accessing credit card activity online every couple of days is the safest way to make sure there isn’t fraud or questionable charges.
Avoid the pitfalls associated with credit cards and reap the benefits instead.