It doesn’t take much these days to drive up the costs of owning credit cards. Fees and interest rates can spike enormously by making even one small mistake in handling credit card usage, and just one ping can deflate a gorgeous, enviable credit score. Take a look at these common credit card mistakes to avoid damaging your account status, pocketbook, or ability to borrow at a great interest rate.
Pay on time, every time
It’s simple: at least the minimum payment needs to be paid on time every month for every card. This means the payment needs to be sent out or scheduled online several days in advance of the due date (a week or more is safer) for each and every credit card bill. One late payment is enough to ruin a good credit score, so if you have the means to pay, don’t procrastinate. Make the payments early, and schedule them ahead of time with your bank if possible.
Don’t skimp on the payment
Making no more than the minimum payment on credit card bills month after month is a bad idea. If you take a look at the way your bill is broken down, you will probably see that the minimum payment barely covers the interest charge and doesn’t touch the balance owed. The reason credit card companies charge low minimum payments is so they can make more money. Stay ahead of the game and pay at least double the minimum every month.
Maxing out is bad
If you max out your cards up to or near the credit limit, you could be headed for financial disaster. Not only will you not have a line of credit to draw upon in an emergency, you could get hit with whopping fees when the balance goes above that line, and interest charges could take you there. Just don’t do it. Try to keep your balances near zero or no higher than 50 percent of the credit limit.
Read the bills
It can be easy to just pay a credit card bill without looking at the details. Not only should you be checking the statement for unauthorized purchases or payments, but you will also want to keep abreast of what your credit card company is charging for the service. Look closely to make sure they are charging what was agreed.
Don’t overspend to get rewards
Let’s face it: a reward isn’t much of a perk when it costs more to get it than it would with cash. Don’t trick yourself into spending more just to get more frequent flyer miles or cash back. Spending $1,000 on things you don’t need, than spending hundreds more in interest over time just to get $50 off an airline ticket isn’t a savings.
Stop and think before you spend, and come up with a way to track just how much value you are getting out of those rewards. If you are paying your balances down quickly, they might be beneficial, but if you are letting debt sit on the cards, racking up interest, it’s time to develop better habits.
Cash advance fees add up
With most credit cards, cash advances don’t come cheap. Not only are the initial fees high, but the interest rates are usually higher than normal rates, and the cash advance amount is also the last to get paid.
When you make a payment, that money is first applied to interest, then applied to purchases, and not until that amount is paid down is any of the principle amount of the cash advance reduced. That means the higher interest is being charged at a higher rate for the full amount every month, and the interest is stacking up, too. Do yourself a favor and skip taking a cash advance unless it is the only option in an emergency.
Enticement rates might bite you later
Don’t get sucked in by low introductory rates for opening new credit cards if the interest fees that go into place later are high. Sure, you may start out with the best intentions of transferring the balance to another card with lower interest while you enjoy the benefits of a lower rate for a few months, but the card companies are counting on the idea that you’ll forget or not have the means to transfer it when the time comes. Why? Because most people don’t do the right thing when the rates go up, so low introductory rates are a good gamble for the bank.
Avoid high annual fees
With so many credit cards offering deals with no annual fee, it’s almost a wonder why anyone with good credit would use a card with high annual fees. Again, many people do it for the perks like travel points or cash back.
Even if you use the card enough to get a reward that surpasses the annual fee, using a credit card just to meet a point goal can mean paying a lot in interest and spending more than you want. Do the math. If it sounds too good to be true, it probably is.