Credit cards can be a dangerous thing when abused, but when used correctly, they actually offer a number advantages that cash simply can’t match. To make the most of your credit card, be sure to steer clear of these major blunders.
Failing to pay your credit card bills on time can hurt you in more ways than one. First, you’ll face a late payment fee for neglecting to at least make your minimum payment in time for the deadline. In addition, you’ll immediately start to accrue interest charges on whatever amount you don’t pay.
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But more so than that, being late with payments is a surefire way to damage your credit score, especially if you make the same mistake over and over again. To avoid falling into this trap, set a reminder toward the end of your billing cycle, or arrange for automatic payments.
While making your minimum payments is better than paying nothing, it also means racking up interest charges that can accumulate more quickly than you might realize. Furthermore, the longer you carry a balance on your card, the greater the risk of maxing out your credit limit, which could impact your credit score and leave you vulnerable if an emergency strikes.
Maxing out your credit card limit is dangerous on multiple levels. It stands to reason that the more you charge, the more you might struggle to pay off your balance. Plus, as we just discussed, if you leave yourself without wiggle room on your credit card and encounter an unanticipated expense, you’ll have fewer options for covering it.
But maxing out your credit card limit can also raise your credit utilization ratio, which is the extent to which you use your available credit, and when this happens, your credit score gets hurt. Most lenders view a credit utilization ratio above 30% as a major red flag, so if your credit cards are maxed out, it typically means you’re well past that 30% threshold.
Closing a rarely used credit card might free up space in your wallet, but if it’s one you’ve had for a long time, keeping it open can be quite advantageous. First, retaining a long-term account can help boost your credit history, which is one of several components that goes into determining your credit score. Additionally, if the card in question has a higher credit limit, leaving it open can help you keep your credit utilization ratio down going forward.
The lengthy agreement that comes with your credit card may seem like it’s loaded with nothing but boring legalese, but in reality, that piece of paper is full of information you’ll need to familiarize yourself with. Knowing your credit card’s terms can help you make smart purchasing decisions, so pay attention to your card’s billing cycle, ARP (the interest rate you’ll pay), and all fees associated with your account.
You might think your credit card’s term are set in stone, but you’d be surprised at how much better they might get if you’re willing to speak up. In a recent CreditCards.com survey, more than 80% of cardholders managed to improve their credit card terms by proactively reaching out to their lenders and requesting changes to their existing agreements. If you’re willing to ask, you might score a lower interest rate or annual fee. Or, you might get your credit limit increased, which not only gives you more flexibility but helps your credit utilization ratio, too.
If you have poor credit or want a card with unmatched perks, you may have no choice but to pay an annual fee for the privilege of opening a new account. But if your credit is strong and your card’s benefits are run-of-the-mill, paying an annual fee could mean throwing your money away. You can consult our list of the top no-fee credit cards to learn more about the options you might have available.
Many credit card companies lure customers by offering deferred interest, which means using your card now and paying no interest on your balance for a preset period of time. What many consumers don’t realize, however, is that if you don’t pay off your balance in full by the time your interest-free grace period ends, your credit card company can retroactively apply finance charges to your original balance in full. In other words, if you rack up $500 in charges and pay off all but $100 by the end of your grace period, you could end up owing interest on the entire $500, and that interest can be back-dated to when you originally made your purchases.
Most issuers offer protection against charges made on a lost or stolen credit card, but the key is to act quickly to minimize the damage. Though some cards will let you off the hook completely for fraudulent charges, others might consider you liable for up to $50 (which is the maximum you can be held accountable for by federal law), so the sooner you report your card missing, the better.
A big reason to choose one credit card over another is the rewards program it offers. But while some rewards don’t come with an expiration date, others do. Store cards, for example, are notorious for offering rewards that can be redeemed in the form of store credit, but you’re typically only given a few months to use them or otherwise lose them. Pay attention not only to the rewards points or dollars you have but the amount of time you get to capitalize on them.