Credit cards have a number of important advantages for consumers. Paying with a credit card entitles you to a number of protections, from refunds on defective and misrepresented products to travel insurance and other perks. The responsible use of credit cards can also help you build a credit history and boost your credit score, allowing you to qualify for lower rates when you buy a home or take out a mortgage.
There is another side to the credit card coin, however. Using credit cards irresponsibly or making common mistakes can cost you a lot of money, both now and in the future. If you are falling for any of these credit mistakes, you could be hurting your finances and causing yourself a lot of problems.
#1 – Paying Late
Paying late just may be the worst thing you can do for your credit score. Creditors report all late payments to the credit reporting agency, and that could wreck your score and cause you to pay even more in interest. Even worse, a single missed or late payment could cause the interest rates on your current cards to spike, making those balances even harder to pay off.
#2 – Not Checking Your Bills Carefully
Many people think that fraudulent charges will be large and easy to spot, but that is not always the case. Scam artists make millions of dollars a few bucks at a time by adding small charges to credit card bills. If a thief has managed to get your credit card number, they could ping your card with small charges month after month, and you may never notice them. Always check your credit card statements carefully line by line, and contact the issuer right away if you see something suspicious.
#3 – Using Balance Transfers the Wrong Way
A balance transfer can be a good way to pay off a credit card quickly, if it is handled correctly. Balance transfer offers generally involve a low teaser rate that is good for a limited amount of time. Once that teaser rate expires, the rate often reverts to a very high level. If you plan to transfer a balance, make sure you know exactly when the teaser rate expires – and make sure you have a plan in place to pay the balance off within that timeframe.
#4 – Falling for 0 Percent Financing Deals
Buying new furniture for your home might seem like a great idea, especially if you do not have to make any payments for the next two years. Those 0 percent financing deals can be very expensive, however, if you do not use them properly. If you miss even a single payment you could be hit with all the accumulated back interest, and that could make your new furniture very expensive indeed.
#5 – Maxing Out Your Cards
Maxing out your credit cards is bad in many different ways. Running your cards to the hilt can make paying even the minimum a financial stretch and make paying off the cards completely nearly impossible. Maxing out your credit cards also hurts your credit score, since creditors look at the amount of credit you have outstanding and how it compares to your total outstanding balance.
#6 – Making Minimum Payments
If you are making only the minimum payments on your credit cards, it could take many years to pay off even a small balance. Worse yet, the interest charges keep accumulating month after month. You could end up paying many times the original purchase price for everything you buy if you pay only the minimum due.
#7 – Paying High Annual Fees
There are times when paying an annual fee is justified, but those times are limited. If you are a frequent flier on a particular airline and take advantage of free flights regularly, paying an annual fee to keep those free flights coming might make sense. In most cases, however, the money you pay for the annual fee is wasted money. It pays to take a close look at your cards and eliminate the ones with high annual fees whenever possible.
#8 – Focusing on Rewards Instead of Spending
It is great to get rewards for buying the things you really need, but focusing on earning rewards can cause you to overspend. If you are focusing on the airline miles, gift cards and cash back you can earn, you are putting the emphasis in the wrong place.