While the first thing you may not hear when it comes to improving your finances are that budgets are sexy, but certainly they can get you on track to putting your hard-earned money to good use. What you are spending now on unnecessary purchases such as shopping sprees, going out to eat more than a time or two a week, paying for a huge cable bill when you only watch Netflix anyways, you could be due to make some changes. Credit cards can actually make good financial sense to use, provided you are disciplined in spending, otherwise you could start racking up a bill you cannot pay for in no time. While there is plenty of good when it comes to credit cards such as fraud protection and rewards, you just want to make sure you are avoiding any potential mistakes in using them.
Not Checking Your Credit Report
First off, while it may not be directly related to a credit card, I’ll chalk it up as still important because your credit limit and APR have to do with your credit score, so the better your score, the more you can take advantage of the best interest rates on the market. You never know who could possibly have compromised your info these days so it’s a good idea to at least check once a year to make sure that everything is up to date and accurate, of which you can pull a free copy from the major credit bureaus, it’s just your score will not be there, but you can see on your monthly credit card statements.
Paying Late
Not only does making a payment more than thirty day late severely hurt your credit and could take up to seven years to come off, as payment history is a large chunk of your credit score, paying even a day late could cost you a late fee and a spike in interest rate. If you can set up automatic payments so you can never miss a payment, that may be wise, otherwise keep a strict record of when bills are due.
Carrying Over a Balance
Credit cards are great in that they offer a grace period of paying back, but whatever you spend this month will start to come up quickly next month, leaving you grasping for dollars to figure out how you are going to pay by the due date. If you do carryover a balance, you will begin being charged interest, which depending on the card, could be upwards of 16% and depending on the balance, would need a really large payment to put a dent into the balance.
Paying Only the Minimum
That actually brings me to the credit card statement itself, where you see a very small minimum payment needed by the due date in order to keep your account in good standing. That amount will probably cover the interest and a few dollars off the balance, so if you plan on continuing to make the minimum payment you can probably figure you’ll be paying on that card for decades, so it’s a good idea to make as large of payments as you can afford each month until the balance is gone, to avoid wasting money away on interest payments.
Using the Wrong Card
While it does take discipline to keep spending under control, one of the best reasons to use a credit card for arguably every purchase are the rewards you can earn, whether those are in points or dollars, just for making the purchases that you were going to be making anyways. By not having a good rewards card you would be leaving free money on the table. Now just keep in mind that once you see the rewards start to add up you may be inclined to make even more purchases “for the rewards”, but before you know it your balance will be too high, you won’t be able to pay the statement by the due date, and you’ll begin paying for interest which will far outweigh any rewards you would be earning.
Closing Zero Balance Accounts
When you do finally get out of debt and see that zero balance that you may not have seen in years, your first instinct may be to close the account so you avoid any risk of charging up the account again, but that actually can be hurting your credit score by closing the account and taking away that available credit, especially if you have a balance on another card and would increase your credit utilization. The best thing you can do it cut up the card and keep the account open.
