Credit cards are a convenient and safe way to make everyday transactions. They also come with a lot of responsibility. Just like they can help build a strong credit history over time, they can also be damaging to your credit if used irresponsibly. Here are five mistakes to avoid when using a credit card.
1. Carrying a balance over time
Carrying a sizeable balance over long periods of time is one common mistake that can damage your credit score. This is especially true if your credit card has met or is close to its limit. If you find you’re utilizing almost all the credit available to you, it’s best to pay off the balance before spending more.
Additionally, the larger and longer you keep a balance on a credit card, the more in interest you will pay. It’s best to use your credit card with the mindset that you’re only going to spend the money you are able to quickly pay off. In other words, spend only within your means. If you currently have a large balance or a balance you have carried over for some time, consider prioritizing paying it down with at least minimum monthly payments. Or, if you’re able, consider setting up monthly auto payments so you never skip a payment.
2. Ignoring terms and conditions
Many people completely skip the terms and conditions documents when they sign up for a new card. However, it’s important you pay attention to at least a few important disclosures, such as when your introductory annual percentage rate (APR) will change, any fees you will be responsible for and how you may avoid them, any rewards you may be eligible for, and more. If you disregard the terms and conditions, you may be surprised by a suddenly high interest payment or a fee you could have avoided.
3. Missing the end of a promotional interest period
A popular promotion many credit card companies and banks run is no interest for the first several months you have the card. This can be a great benefit, especially if you need credit quickly and are able to pay it off before the promotional period ends – interest free! However, a common mistake is forgetting when this promotional period ends and suddenly being charged a higher interest rate. To avoid this, set a reminder on your calendar for when the promotional period ends so you can pay off you balance right before.
4. Not monitoring for fraudulent activity
It’s important to monitor your credit card transactions regularly so you catch suspicious activity on time. A common mistake is discarding your monthly statement without reviewing all the charges and/or never requesting a free credit report. Both of these strategies can help you catch fraudulent transactions, protect your credit history and get refunded for unauthorized transactions.
An easy way to remember to regularly monitor for fraudulent activity is to set reminders to request a free credit report once a year and to log into your internet banking account once a month – or read your monthly statement when it arrives by mail or email.
5. Applying for too many credit cards
Lastly, it’s important to understand that each time you apply for a new credit card, it will initiate a credit inquiry, which is a request for your credit report information from a credit reporting agency. Having too many credit inquiries, especially in a short period of time, can damage your credit score. To avoid this, apply for only one credit card at a time.
Despite some of the risks and responsibilities that come with having a credit card, they can be great tools for borrowing money for a short period of time and conveniently and safely making purchases, especially if you keep these five tips in mind!