Using credit cards can be a great idea for some consumers. If you learn how to charge responsibly, you can rely on a credit card to build up your credit score as well as earning rewards. Unfortunately, the proper use of credit cards isn’t typically taught in school, and your parents may never have explained to you how to avoid the risks. Being under-informed about how to use credit cards correctly can make that little piece of plastic one of the most dangerous items in your possession. The best credit card for low credit can’t help you if you don’t know what to avoid when managing your credit cards. Here are six big credit card mistakes that you should avoid making if you are rebuilding your credit and want your card to keep working for you.
1. Opening Too Many Accounts –
Credit card companies love to bombard consumers with offers that can seem too good to pass up. After all, what harm is there in opening a couple more credit cards when they have such great interest rates and offer such enticing rewards? Actually, having too many credit cards when you have bad credit can cause your credit score to take a major hit. When you get to a certain point, potential lenders might look at your credit record and wonder why you feel like you need all that credit. If it makes you look like a volatile customer, you may find yourself being refused other financial products like loans. Bad credit credit cards aren’t easy to get, try to stick with one or two until you have your expenses under control.
2. Misunderstanding How Interest Builds –
Many consumers like to use credit cards purely for their rewards and for rebuilding credit. You probably know that as long as you pay off your balance each month, you won’t rack up any interest charges, which can make even those who don’t like the idea of credit feel comfortable using credit cards. Unfortunately, once you allow even a small balance to carry over on your credit card, you no longer get that same interest-free grace period. Now, every purchase you make will immediately start to accrue interest, which means that you could end up owing a lot more at the end of a month than you were expecting.
3. Making Late Payments –
A single late credit card payment can cause your credit score to take a major hit. You will also be responsible for paying late fees and will likely see your interest rate immediately rise. No matter what else you do with your credit cards, you need to make sure that you pay them on time, every time. Remember that if you mail in your payments, it can take up to three weeks for your bank to process the check. It’s almost always a much better idea to pay your credit card bills online so you don’t have to worry about potential penalties. Look for no fee credit cards, keep the extra things you pay for to have a credit card for low credit to a minimum.
4. Paying the Minimum –
Many consumers think they can just skate by if they make the minimum payment on their credit cards every month. What you probably don’t realize, however, is that the minimum payment all but guarantees you will never actually pay off your debt. Often, minimum payments only cover the amount of new interest you owe and don’t even touch your actual debt. Always try to pay more than the minimum (and pay off you entire balance each month whenever possible).
5. Getting Too Close to Your Credit Limit –
When your credit card has a great rewards scheme, it makes sense to use it for all of your expenses, right? Wrong. Creditors don’t like it when you spend close to your total credit limit. Even if you have the funds to pay off your cards each month, it makes you look like you are desperate for credit. Try to avoid letting your revolving balances ever get any higher than 50 percent of your total available credit.
6. Taking Cash Advances –
If you are in a financial bind, taking a cash advance from your credit card might seem like a logical solution. Unfortunately, almost all credit cards charge astronomical interest fees on cash advances–often, you could end up paying rates up to twice as high as your APR. You also won’t be offered a one-month grace period before interest starts accumulating. Instead, the fees will start to pile up immediately, and you will often end up paying well above the amount your originally borrowed via your cash advance. The only time you should ever consider taking a cash advance from your credit card is if you are in such dire financial straits that you have no other options.
Credit card mistakes, though they may seem minor at the time, can negatively affect your credit for the next seven years, so it’s a good idea to do everything in your power to avoid making them. Even the best credit cards for bad credit can carry a larger interest rate than a card carried by someone with good credit. By spending responsibly and always protecting your credit score, you can ensure that future creditors and lenders will be happy to work with you and that you will have an opportunity to get credit at a smaller interest rate.