Tips for Using Credit Cards Wisely

woman removing credit card from red walletAfter obtaining a credit card it’s important to take measures to use this newly obtained credit wisely.

Having a credit card isn’t what gets some people in trouble, it’s the way they use it that does.

Common Problems:

1. Getting too many credit cards

The temptation to receive a free gift or otherwise can lead a person to obtain many credit cards. There is very few times when having additional cards lying around will benefit the consumer. Even if the credit cards are left with a zero balance, the lender may wonder why and what will happen if the consumer was to max out all of the cards, and as a result, make changes to the cardholders terms.

2. Misunderstanding introductory rates

The 18 months of zero interest may sound appealing, and even provide rationalization for opening a new card to ‘transfer over’ a balance and save on interest charges. However, a common mistake is not looking at what happens when this introductory period is over. Often, when the rate jumps, it jumps high, putting the consumer in an even worse spot than before.

3. Not reading the fine print

Within the fine print is where you’ll find the rate the card changes to after the introductory period, as well as balance transfer fees, grace periods, and all other relevant information that is part of ‘doing your homework’ prior to obtaining a new credit card.

4. Choosing a card for the wrong reasons

You’ve always wanted to go to Hawaii, and that free round trip ticket from your new credit card will get it done! Or, you are freezing cold at the ballpark and there is a credit card company offering free blankets with sign up (it happened). Either way, the wrong reasons often lead people to sign up for credit cards they don’t need, or do not fit with. The credit card company’s job is not to match each consumer with the best card for their needs, but rather to issue more cards. So be wary of the gimmicks involved with getting you signed up.

5. Not rate shopping

When an envelope arrives at your door with ‘pre-approved’ written on the front, and two airline tickets that could be yours, it is tempting to just accept the offer. Most of these unsolicited offers will not have the best available rates, however, and you will likely pay for it through various fees in the long run.

6. Making minimum payments

Carrying a balance on a credit card is how the companies issuing them make money. It’s also the way that consumers get in trouble. Credit cards should not be used as supplemental income, but merely as a convenience tool that gets paid off every month. Paying the minimum amount due, because that’s all that is required, is the quickest way to find yourself behind the debt 8 ball.

7. Paying your bill late

Not only will you face a late-payment charge, which could be higher than your minimum payment, your tardiness will show up on your credit report, damage your FICO score and make it harder to get better terms on future loans and accounts.

8. Ignoring your monthly statement

By not carefully reviewing each month’s bill, you will definitely not be monitoring your own spending habits well, and could possibly be ignoring someone else too. In the days of ID theft it’s imperative to check each statement religiously to make sure there are no unusual charges.

9. Exceeding credit limit

Not all cards will be declined if they have reached their credit limit. Many will allow charges to go through only to later hit the user with fees and a lower credit score. By taking into account rule 8, regularly checking your statement, and knowing your credit limit, you should be able to avoid crossing the balance, which that will have a negative impact on you if you do.

10. Buying things you don’t need

Basic rule, but it’s one that is perhaps most often broken. Credit cards are a tempting way to purchase things. The old rule about waiting 48 hours to purchase something can greatly reduce impulse buys, or other buys that upon reflection weren’t necessary. If you need added self-control, some suggest freezing the credit card in ice, so when you are tempted to make that online purchase, you have to wait until it melts prior to using it again. The thought being that by the time your credit card thaws out, so has your urge to shop.

Next we cover credit card safety and security

Posted on January 24, 2012 by in Credit Cards

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