A credit card can be a very beneficial tool when it is used properly. Not only can a credit card help you build and maintain a good credit score, but many credit card companies offer appealing rewards plans to their customers. Unfortunately, consumers often make common mistakes when using their credit cards. These mistakes can result in extra fees and/or damaged credit scores.
1. Paying only the minimum payment each month
If you carry a small balance on your credit card, paying only the minimum payment may not affect you all that much. If, however, you carry a relatively high balance, paying only the minimum payment to your credit card provider does little to help you pay down your balance.
Although credit card companies are required to allocate a portion of each customer's payment toward the principal, the amount allocated may be negligible at best. This can leave you paying the interest charges on your credit card for years without making much progress toward paying off the debt.
See how long it will take you pay off your credit card balance paying only the minimum required each month: Credit card minimum payment calculator
2. Making late payments
When you make a payment late, your credit card company will charge you a late fee. The amount of the late fee depends upon your credit card provider, but the days of ten dollar late fees are over.
If your payment is over 30 days late, the credit card company will report this fact to the credit bureaus. The late payment will then appear on your credit report for seven years. Your payment history on your debts accounts for a whopping 35% of your credit score. Even one late payment notation can have an adverse effect on your credit rating.
3. Ignoring the interest rate
Interest rates change over time. Your credit card provider can raise the interest rate on your credit card if you go over your spending limit, make a late payment, or if you default on your debts to any other creditors.
What many people do not realize, however, is that a credit card company may also raise your interest rate in various circumstances. Check the interest rate on your credit card periodically to ensure that it has not changed.
4. Using the credit card for frequent cash advances
Although the occasional cash advance may be necessary, using your credit card for frequent cash advances can leave you in financial hot water. Credit card companies often charge a much higher interest rate for cash advances than for regular purchases.
Cash advances also often have a shorter grace period for the accrual of interest. A cash advance will always cost you move over time than standard credit card purchases.
5. Adding an authorized user
Your credit card company may give you the option to add an authorized user to your credit card account. An authorized user is anyone that you permit to use your account to make purchases. Before you add an authorized user, make sure that the individual can be trusted.
You are legally responsible for all of the purchases that an authorized user makes using your card. The safest course of action is not to add any authorized users to your credit card account.
6. Not checking the credit card bill each month
Many individuals make their credit card payments every month without ever examining their bills. Unfortunately, this is a dangerous practice. Any credit card company can make a mistake and charge you for purchases you did not make or add an undeserved fee to your account.
In addition, thieves lurk everywhere waiting for the opportunity to steal your credit card number. If you don't carefully monitor your credit card bill, a stealthy identity thief can make numerous purchases using your credit card account before you notice the problem.
7. Not using the card
It is perfectly understandable to have a credit card for emergencies. If an emergency should arise, however, you want to be certain that your credit line will be there when you need it. Should you fail to use your card to make periodic purchases, your credit card company may charge you an inactivity fee or even cancel your account outright. If you have credit cards you do not regularly use, make small purchases on them from time to time to ensure that the accounts remain open.
If you take care to use your accounts responsibly, you can avoid most unforeseen credit card disasters. Don't wait to learn the hard way. Making minor changes now can save you the stress of dealing with large fees, lowered credit scores, and steadily growing balances later.