July 31, 2017 | Money Management

5 Credit Card Mistakes You May Be Making Now

Credit cards are an essential part of our daily lives, and yet for something so common, many people are unaware of the easily avoidable mistakes they’re making with their cards.

These mistakes aren’t always as obvious as missing payments or failing to pay off the minimum balance each month; most of us are aware that these aren’t good practices. There are other less obvious mistakes that people make that are costing them money each month. Here are five credit card mistakes you should avoid.

Opening New Cards When You Don’t Need Them

For every credit card you open, your credit score takes a slight hit because opening a card requires a credit inquiry, which always lowers your score. The amount won’t be enough to do any real damage, and your score will recover after a few months, but if you are planning on making a major purchase by taking out a loan during that time, the hit to your score could force you to pay a higher interest rate.

If you don’t need your credit score to be as high as possible for a big purchase, and you truly need credit, this shouldn’t deter you from obtaining it. Opening a card that you don’t need, however, will unnecessarily lower your score. In this case, that means that the department store credit card that gives you 10% off purchases just isn’t worth it.

Treating a Credit Card as a Replacement for Cash

When you’re making routine purchases like gas, groceries, or even entertainment, it’s often easier to reach for the plastic instead of paying cash. This makes even more sense if cash is a little tight and you need a credit card to make purchases while you wait for your next paycheck.

If you’re constantly using credit to pay for routine purchases due to cash flow problems, you’re very likely not paying your credit card bills in full and on time. In that case, you’ll be paying more in interest, which makes your plastic habit even more expensive than it looks at first glance.

If convenience is your goal, use a debit card to keep your spending more in line with what you can actually afford. Additionally, if you find yourself frequently low on cash, consider working with an expert financial counselor to learn how you can make lifestyle changes to avoid living beyond your means.

Choosing a Card Based Only on Rewards

One of the most common ways credit card companies entice people to open a card is with rebates and rewards—anything from cash back on every purchase, to travel and merchandise rewards.

These can be tempting, and if you use the cards the right way, they can be a great perk; but you shouldn’t choose a card unless you know you’ll actually take advantage of the rewards. For example, a card could offer wonderful travel rewards like points that can be redeemed for plane tickets and hotel stays. But if you only travel once a year, that’s probably not worth it. The rewards you choose should reflect your lifestyle.

More importantly, a card with a high APR and balance transfer rates could negate any benefits you get from the rewards. If you’re paying more in interest than you’re getting from the rewards, the card isn’t worth it.

Failing to Understand the Terms of an Introductory Rate

Many credit card companies use promotions like “0% APR for the first 6-12 months.” This can be a great opportunity, but it’s crucial that you understand the fine print on this sort of deal.

Often, people use 0% APR credit cards to make a big ticket purchase and avoid paying interest on it. What happens is that even though there’s no immediate interest payment, interest may accumulate over time, and when the introductory rate expires, you’ll be charged retroactively for the interest on any existing balance.

In other cases, cards with low introductory rates still charge extra fees for balance transfers, making them more expensive than they seem at first glance. As with most things in life, it pays to read the fine print carefully.

Waiting Until the Very Last Day to Make a Payment

With online banking, it’s easier than ever to pay your monthly credit card bill. This can lead some people to wait until the last possible day to submit their payment. The problem with this is that it fails to account for processing time.

Most credit cards will charge you even if you’re just a few days late. This charge can come in the form of a fee or a higher interest rate, and you’ll also pay for it later in the form of a lower credit score. Your payment history accounts for 35 percent of your overall credit score, so late payments can have a noticeable impact.

Credit cards are an invaluable part of our daily lives. By avoiding these critical mistakes, you can ensure that your cards benefit you as much as possible.

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