Ah… credit cards. The avenue to reckless spending, high interest charges, and ruined credit. When I think back to how much better I was at saving money before I got a credit card, (or was that before having a baby?) I just want to kick myself. It’s definitely much easier to make a stupid impulse purchase when you have that shiny piece of plastic, rather than just cash. And it’s a piece of cake to just stop paying off your entire monthly balance and worry about it later.
Now don’t get me wrong. Credit cards are definitely a slippery slope, but they’re not all bad. They’re a necessarily evil since you need to build credit to do things like rent a house or apartment, get insurance, or get a loan.
As long as you’re responsible, credit cards can be a huge plus. They’re more secure than debit cards, and in today’s world of online shopping, you’re pretty limited if you don’t have one. If you don’t want to overpay for your purchases, (think interest charges, late fees, etc.) you have to pay attention. I’m not suggesting you keep your credit cards in the freezer to avoid spending money, but here are five common credit card mistakes you should avoid at all costs.
Paying bills late – I’ve been guilty of this one before, and BOY does it add up. Do it even once and you’ll face paying a hefty late fee and interest charges, as well as a ding in your credit.
When I first got my Discover card, I made the mistake of paying my bill right smack dab on the due date. I thought I was golden, since I was paying my bill on time, (right?!) but unfortunately, I didn’t pay attention to the “payment posting” date. The payment didn’t go through for another day, turning it into a late payment. The result? A $35 late fee. And interest charges on the unpaid balance. That was a tough pill to swallow, but needless to say, I haven’t made THAT mistake again.
So besides late fees, what else is wrong with missing the due date on your bill? Paying your bill late is one of the easiest ways to kill your credit. And bad credit means higher interest rates later on down the line. So just don’t do it. It will cost you in more ways than one. Mark the due date on your calendar and pay it ahead of time.
Making minimum payments – It’s so tempting to say “I’ll pay $25 now and worry about the rest later.” This is bad. Very bad. Try not to view your credit card as a high-interest loan, but rather as a responsible way to spend money you already have.
Always make an effort to pay more than your monthly minimum on the bill. It’s even better if you pay off the whole balance month-to-month. Why? Continuously making no more than the minimum payment is like getting caught on a hamster wheel. Yes, you will eventually pay off that bill. But you’ll be paying interest charges over and over in the meantime. Even if you can increase your monthly payment by 10 or 20 percent more, you’ll make a big difference in the overall amount you’ll have to pay.
Using up all available credit – This is a toughie. They give a $2000 limit, so why not use it? The truth is, you should avoid using more than 30% of your credit card limits. The reason behind this is that the more available credit you use, the worse it is for your credit score. Lenders don’t want to see that you’re constantly maxing out credit cards. So if you have that $2000 limit, don’t use any more than $600 of it. And if you have a need for more credit, try to get your limit raised.
Not reading your statement – Credit card, debit card, checking account – always go through your monthly statement, and read it closely! Mistakes happen. I’ve been burned by this one before. I signed up for a free trial offer on a website and didn’t realize it would be converted into a paying membership when the trial was up. (I guess I should have read the fine print.) Although I hadn’t used the service, I was charged for three months’ worth of fees! The company was only willing to refund one month of charges. Now I go through my account statement with a fine-toothed comb at least once a week.
This is also a great way to spot identity theft. If some unfamiliar charges pop up, you’ll know that you’ve got a problem and will be able to stop payment. The bottom line here is that checking your statement can prevent a lot of issues.
Taking cash advances – When I first got my credit card, the company sent me a handy dandy little “check book” that I could use for cash advances on my line of credit. This is a great way to rack up ridiculous amounts of interest charges and fees. Many companies charge an up-front fee for using a cash advance. On top of that, the interest charges will be much higher than a regular charge. Unless it’s an emergency and you have no other option, it’s a really dumb thing to do, so just don’t do it.
Credit cards can be a great thing, if used responsibly. Pay attention, and be diligent about your payments, and you’ll be on the track to building really good credit.