Like it or not, we are a credit card culture. It's estimated that there are 1.5 billion credit cards in use in the United States. Nevertheless, access to credit cards is a privilege not a right, and if you make mistakes, you’ll pay a price – sometimes a hefty one.
Credit card issuers have responsibilities, too. Many of those responsibilities are codified under the Credit Card Accountability Responsibility and Disclosure (“CARD”) Act. But consumers’ first responsibility is to themselves.
With that in mind, here is a list of serious credit card mistakes and their equally serious repercussions:
1. Paying Late
A due date is not a guideline, it’s a deadline. Always make timely payments. Set up automatic notifications either by text or email and/or automatic debits from your bank.
Remember, your payment history represents 35 percent of your credit score. If you fail to pay your bill within 30 days:
- You will be reported as late to a credit reporting agency
- You will be assessed a late fee
- That negative information will remain on your credit report for seven years
- In addition to facing higher interest rates on future purchases from that credit card company, you run the risk of paying higher rates and/or having your application rejected when you apply for other credit products.
2. Paying the Minimum
If you have to pay the minimum now and again, it’s not a big deal, but don’t make it a habit. Depending on your balance, making only minimum payments can increase the life and sum of your debt considerably. (Try this calculator to see the impact)
One provision of the CARD Act requires credit card bills to disclose the length of time it will take to pay off a credit card when you only make the minimum payment versus a 3-year plan.
3. Charging Anywhere Near Your Credit Limit
Creditors look very closely every month at the percentage of your available credit that you use. If you use more than 10% for any meaningful period of time, it will hurt your credit score.
About 30 percent of your credit score relates to your credit utilization. If your credit score declines, your cost of borrowing will increase and your access to credit will become more limited. There may be certain times when you need to charge a large amount, such as an emergency car repair. Try to pay down that balance as quickly as possible.
4. Taking Credit Card Cash Advances
A credit card advance is not the same as making a charge on your credit card. In many cases, you’ll pay an interest rate that is 10 to 15 percentage points more than the rate you pay on purchases. Generally, credit card cash advances only make sense when compared to payday loans or a string of overdraft charges, but it's an expensive way to borrow money. Consider a personal loan if you really need the cash, but definitely do not use a credit card cash advance for a discretionary purchase that you otherwise can’t afford.
5. Closing Old Credit Card Accounts
This may seem like the best way to celebrate paying off a big debt, but consider this: every account represents a component of your available credit. And each time you remove such a component by closing it, you are reducing the pool of available credit against which all your credit balances are measured.
The less available credit you have, the greater percentage you are using whenever you charge something in another account. Exceed 10% and your credit score is likely to be negatively impacted. When you pay off an account, feel free to cut up the card, but think twice before you close the account.
6. Ignoring the Fine Print
Everybody loves a deal and there are some tempting 0% introductory offers available right now. Unfortunately, all things must come to an end and so do introductory offers. Make sure you read the fine print to understand your real rate when the promotional rate ends. Also, never forget that even the best introductory offers get real ugly if you miss a “principal” payment date -- the interest rates will jump to a significantly higher “default” rate.
7. Failing to Pick Up the Phone
Negotiation is an American pastime. If you’re running a balance and you feel the interest is too expensive, do some legwork. Check out other credit cards offers to see rates they would charge. Be sure to see what the balance transfer fee would cost. If you find a better deal, don’t be afraid to call your credit card issuer and haggle. The worst they can say is no
8. Getting Sucked in By Your Favorite Brand
Never forget that sales “associates” are often given a bonus if they get you to sign up for a store credit card. They love to offer you a 10 to 15 percent discount on today’s purchase, because of the high interest rate on any balance you carry. If you must have the discount, do the deal and pay off the balance immediately.
9. Failing to Check Your Credit Card Accounts Daily
By reviewing your credit accounts frequently you can spot fraudulent charges or potential signs of identity theft. It will also let you know how much of your credit limit you have used.
10. Sending Credit Card Information Via Email
The only thing dumber than entering your credit card information on a website that you discovered by way of a random email link is to send credit card information through your email account. Email is not secure; it’s an easy target for hackers.
The bottom line: A credit card is a vehicle. You are the driver. If you operate it safely and responsibly it will give you access to the things you want while helping you build a credit portfolio that is an asset, not a liability.