No matter what type of credit card you use, you are susceptible to the same pervasive credit card missteps as any other consumer. While it’s a fact of life that people make mistakes, simply being aware of the most common credit card missteps and how to avoid making them—both of which are explained below—will significantly decrease the likelihood of error and will, in turn, save you money.
1. Misunderstand how balance transfers work
Credit card companies often stress their 0% balance transfers but less readily advertise that they also charge fees of 3-5% of the amount transferred for the service. Therefore, it is important to check your credit card application’s fine print before making a balance transfer in order to see how much it will actually cost. Additionally, make sure that you minimize the overall costs you incur by paying off your debt before any 0% interest offer expires.
2. Pay unnecessarily high interest
If your interest rate has risen because of payment issues, you have the legal right under the CARD Act to request that it be lowered after six months of on-time payments. Similarly, certain credit cards have better interest rates than others, so shopping around could be beneficial.
3. Carry a balance with a business credit card
Unlike personal credit cards, small business credit cards are not protected by the CARD Act from arbitrary interest rate changes. Thus, you should use a personal credit card for any purchasing that will require you to carry a balance, even when you are funding business expenses. With a personal credit card, credit card companies are expressly prohibited from increasing your interest rate on your existing balance unless you become 60 days delinquent.
4. Select the wrong rewards credit card
If you travel more than 30,000 air miles with the same airline or stay more than 20 nights at the same hotel chain each year, you should get a travel rewards credit card because you will have the opportunity to frequently redeem rewards for free flights and hotel stays as well as enjoy improved access and preferential treatment. If you do not meet the aforementioned travel requirements, you should get a cash back rewards card because their use is more flexible and you will not be exposed to the risk of getting your miles or points devalued by your credit card company.
5. Incur unnecessary overseas costs
Simply being aware of a few common costs associated with overseas travel can save you a lot of money and tribulation. Prior to going abroad, make sure that you have a VISA or MasterCard credit card with no foreign transaction fees and that your credit card company is apprised of your travels. In addition, never accept offers to have purchase amounts converted from the local currency into U.S. dollars because merchants often assess high exchange rates in doing so.
6. Give out your credit information
Despite being seemingly obvious, it is important to reiterate that it is unwise to give out your credit information to others or allow people access to your credit account. You are ultimately liable for any spending these people may undertake because you are the primary account holder. This advice holds true even with family members and close friends because an unforeseen event—like estrangement, divorce, or financial difficulty—might remove incentive or ability for repayment.If you must make someone—such as a child—an authorized user on your credit card account, make sure there is a limit on that individual’s spending because it lowers potential risk and there is no reason for them to have the ability to spend beyond a certain amount anyway.
7. Pay below the minimum required
Credit card companies regard payments below the minimum amount required the same as no payment at all. Thus, if you do not have enough available money to make a minimum payment, wait until you do. Still, if you are already delinquent it is important to note the difference between total amount due and the required minimum payment—the total amount due is what you must pay to become current, the minimum amount required is what is needed to avoid becoming more delinquent. Therefore, don’t get intimidated by the total amount due on your bill and think that since you cannot pay that amount, you should not pay anything because doing so will simply cause you to fall further into delinquency.
8. Ignore your problems
Time will not heal all financial wounds. In fact, simply ignoring credit problems will only worsen them and complicate their resolve. There are myriad legitimate ways to escape credit trouble but each requires actually addressing the problem as a first step. Do not hesitate to ask for professional help and never take any options off the table, including requesting a free consultation with a bankruptcy attorney.
9. Spend beyond your means
Charging amounts greater than you can definitely afford to pay off within a reasonable amount of time is a bad idea because the repercussions for doing so are so serious. Interest rates and delinquency will make your debt more costly and the low credit scores brought about by payment issues may keep you from being approved for a loan, renting a property or even getting a job. Therefore, do not make purchases and hope for the best. Instead, ensure you have the requisite funds to at least make on time minimum payments. If you do not know if you will be able to responsibly pay for a purchase, consult a credit card payoff calculator in order to determine an appropriate plan for payment.
10. Exceed your credit limit
While the CARD Act requires consumers to opt-in for the ability to exceed their credit limits and over limit fees now closely approximate the amount by which a consumer exceeded his or her credit limit, consumers should still not exercise their ability to exceed their limits except in the rare case of an emergency. If you find yourself exceeding your credit limit multiple times per year, you should call your credit card company and opt-out of the ability to do so. Exceeding your credit limit is a sign that you are financially undisciplined and can increase that likelihood that you trigger the Penalty APR on future transactions.
Disclosure: Some of the links within this article point to CardHub.com, which is owned by the same parent company as Wallet Blog.