Not only do Americans have a lot of credit card debt, many struggle with understanding how to manage our credit cards. Credit card mistakes are all too common and can lead to higher interest rates, potential fees, or even harm your credit score.
Whether you’ve had a credit card for years or applying for your first, avoid the following mistakes or it could cost you.
Late payments are one of the biggest mistakes you can make as they can hurt your credit score and rack up potential fees. Making payments on time (even if it’s just the minimum) keeps your accounts healthy and helps avoid fees. Payment history accounts for 35% of your FICO credit score; any payments 30 days past due can significantly impact your score.
Open your statements every month so you don’t miss important information including due dates. Schedule automatic payments through your financial institution’s online bill payment to stay on track.
Making the Minimum Payment
Just because there’s a minimum payment doesn’t mean that’s what you should only pay. Paying just the minimum payment means you’re being charged interest on the remaining balance and extending the time it takes to pay off your balance.
Maxing Out Cards
No matter how many cards you have, pay attention to the portion of the total credit available you’re using. Using more 30% of your available credit is dangerous to your credit score. If you max out a card, you could run into potential fees and even a possible penalty interest. Use your card for purchases you can easily pay off immediately to keep your balance low and your payment manageable.
Related post: 3 Ways to Improve Your Credit Score
Applying for Too Many Cards at Once
The more credit you apply for, the more your credit score takes a hit. Applying for too many credit cards within a short period of time raises a red flag to lenders. Only apply for a new card on an as-needed bases. Similarly, avoid applying for a credit card if you’ve recently taken out other loans such as buying a car or house.
Not Knowing Your Terms
It can be overwhelming, but reading the fine print of a credit card will help you understand your card better. Take time to understand when payments are due, how late payments are handled, and any applicable fees.
Related post: 5 Tips for Handling Your First Credit Card
Withdrawing Cash (Getting a Cash Advance)
Unless it’s a true emergency and you have no other option, avoid getting a cash advance. Unlike using your credit card, cash advances begin accruing interest immediately and it’s typically at a rate higher than your card’s purchase APR. In the event you need cash, read the fine print and repay the cash back as soon as you can.
Paying Excessive Annual Fees
Avoid credit cards with annual fees whenever possible. While there are a variety of reasons a financial institution adds an annual fee to a credit card, you can find credit cards with a low rate and reward opportunities without the annual fee.
Nearly half of Americans have money stress from expenses being equal or greater to income. While these tips help you manage your credit card, it’s important to live within your means. Avoid overspending and only buy the things you know you can afford. The best way to manage your card is to practice smart spending so you can pay off your card to avoid interest, fees, and stress!
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