Credit cards are a necessary evil in the modern world. You need cards to book a flight, make reservations, pay bills, and to build credit. On the flip side, they can also devastate your credit rating if you are not careful.
Luckily, all you need to do to avoid problems is follow a few simple rules to use credit cards the right way. They are not secrets but the credit card companies don’t want you to know them because they help you save money, while costing them money.
If you follow these guidelines your credit will be safe:
1. Don’t load up on bank cards – This is a mistake that too many people make. They think that if one bank card is good then five must be great.
This is not true at all because one, maybe two, is all you need. If you apply for too many cards it can send up a red flag, and it could even interfere with trying to get credit on something more important like a car or a house. Also, it is just one more bill you will have to keep up with.
2. The same is true of store cards – If too many bank cards is a bad move then too many store cards is even worse. For the most part any store credit card can be bad so why would more be any better?
They typically have much higher interest rates than your bank cards, and offer little in the way of rewards. Even if you get one just to take advantage of a promotional offer, cancelling it later may show a credit reduction.
3. Not understanding introductory terms – This goes back to having too many cards. Some people get the card based on that rate but fail to look at what the rate will become later.
On top of that there are usually a load of restrictions on what qualifies for the new rate. Always pay attention to the long term rate before picking a card.
4. Taking your credit card to the limit – Just because you were granted credit it does not mean that you need to use it all. For one, it makes new creditors less likely to grant you more credit because it appears you are in desperate need for it, and that is not something they like to see.
It can also cause you to acquire over-the-limit fees depending on your card terms.
5. Making late payments – Credit card late fees are one of the biggest waste of your money. You are paying a good deal of money for which you have gotten nothing. The fact the credit card companies love charging them should tell you something.
6. Tossing the notices – Often time you will get mail from the credit card company that you know is not your statement. If you are like a lot of people, these do not get read.
Credit card companies often seem sneaky, but they will always tell you when they change your terms. Make sure you read all mail from them so you will know and understand what they are doing.
7. Pay attention to what you are spending – Almost as bad as the credit card late fees are the over-the-limit fees. Once again you are being charged without anything in return. This is one of the reasons not to get too close to your limit.
8. Read your statement – We live in a time when identity theft is out of control. You can’t stop it but you can make it harder. These thieves are hoping you don’t look closely at your bill.
They want to charge as much on your card as they can before you catch on to what is happening. Reviewing each statement can stop them dead in their tracks.
9. Don’t be a co-sign sucker – Besides your kids, never co-sign for anybody. By co-signing you are taking the debt on yourself in the event the card holder defaults. Besides, this is a bad risk since the person that needs a co-signer must have done something in the past to warrant needing one.
10. Not over paying – The minimum payment amount the credit card company sends you is just that, a minimum. Yes, it is better to pay that than get hit with a late fee but paying only the minimum is no way to get out of debt.
In fact, if you only pay the minimum it can take years to pay off even a small balance. That is just what they want because you will be paying an outrageous interest rate the entire time.
11. Needs versus wants – If you were to look back over your credit card spending, you can see how much of your spending is going for things you just wanted rather than needed. If it is just a want then you should really save for it rather than charging it.
12. Poor choice of cards – One of the big mistakes people make on their credit cards is getting the wrong card for the wrong reason. Different cards try to lure you with different things. Be objective about the terms before you decide whether or not it is the right card for you.
13. Rate shopping – Don’t just randomly pick a card. You should shop around and find the best rate.
14. The fine print – Always read the fine print. Not just on the application but the fine print on anything the credit card company sends you. That also means any notices or statements.
The company has to give you any information you need. They just do not have to make it easy to find.
15. Stay under the limit – Stay underneath your limit. The card companies will let you spend a little over your limit. In fact, they want you to so that they get to charge you an extra fee. Never do things that give your credit card company money for nothing.
The list might seem long but as you look back on it you will notice that it is made up of things you already know but sometimes ignore. If you follow the list, however, you can keep your credit report spotless.
Author Bio: This article was written by personal finance writer Timothy Ng from Sydney, Australia. He is genuinely passionate about helping people compare balance transfer credit cards and helping them through researching to find the best credit card.
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Great article on the dangers of credit cards. People need to be aware of the risks and rewards that credit cards offer.
I am personally an advocate of credit cards for those people who can properly manage their finances and not overspend just because they have a credit card.
I apply for one or two of them a year, primarily to get the sign up bonuses, and my credit rating is at a reasonable level and has never interfered with my ability to secure loans.
Really good and almost every risk is mentioned. People are aware of most of these but the biggest blunder they make when they do not read the credit card form/ documents properly at the time of signing.
Closing old cards in order to get new ones with special offers will hurt your credit. Old credit gets more points.
Store credit cards score less than a VISA or Master Card.
Good point Kathy! I always keep my oldest two cards active and then close others as I don’t need them anymore so my average account age is still long.
I find doing things this way allows you to still sign up for the occasional new card and still keep a decent credit score.
When I read the title, I honestly expected to see some obscure things on this list. However, every one of these is very common.
That’s really a sad thing to think about – so many people who have no idea how to use credit!
The thing about store cards is — I don’t want a wallet that weighs more than I do. Visa and MasterCard are enough. If a store wants to offer some special rewards program, do it in a way that does not foist on me something that takes more place in my wallet. Otherwise, the cost of the rewards is just too much for me.
Great article! I just saw these at Target the other day and was impressed.
I agree it does not make much sense to just load up on needless bank cards. While i believe you should always have a back up card just incase something goes wrong, going over three cards in the wallet is just too much. People really don’t notice that small fee’s on a bunch of credit cards can really add up over time along with too many bills to read and follow.
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Many people forget about the high interest charges from credit card usage. They just love the easy to shop because having a credit card. That is why many people can not pay the credit bills on time every month. Finally their credit score get worse.
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Superior things to know