Getting your first credit card is an exciting experience. Credit might offer one of the first tastes of adulthood – a chance to establish your financial roots in a new country, or even the first step in building credit for purchasing a home. Unfortunately, for many, a first credit card can also lead to some avoidable credit card traps.
It’s tough to come up with a credit card mistake bigger than a missed payment. Missed payments can cause a variety of issues that can quickly lead to serious financial problems.
Fortunately, missing a credit card payment is avoidable. Most issuers send an accountholder their statement around 21 days (or three weeks) before its due date.
Most card companies also offer a grace period. A grace period is a set window of time (usually around 14 days) after the due date before penalties are assessed. What types of penalties? Here are some of the most common:
When you miss a card payment, your issuer can assess a penalty interest rate. Penalty APRs typically are around 29.99% – far higher than the regular interest rates for all cards apart from some credit repair cards for bad credit.
While a penalty APR won’t impact someone who pays their bill in full every month, if you carry a balance, a penalty rate can inflate your card balance quickly. Even worse, penalty APRs can run for six, nine, or even twelve months.
Missing a card payment may also result in a late fee. Once the grace period ends, your card company can charge a late fee of up to $28. If you miss another payment within six months, that fee increases up to $39 (and sometimes higher).
Other Impacts from Missed Payments
Your credit score takes the biggest hit from a missed payment. Most lenders prefer to use the FICO scoring model. Since 35% of a FICO credit score is made up of the payment history, one missed payment can have long-term ramifications.
Falling behind on payments for 30 days results in a credit score hit. Missed payments stay on a credit report for seven years. It takes a long string of on-time payments to counteract the damage of a single slip-up, so be wary – and avoid missing your credit card payments at all costs.
Trying to Open Too Many Account Quickly
Another fundamental credit mistake to avoid is accumulating too much credit too quickly. Too many credit checks in a short period can drop your credit score for months – or up to two years.
The basic premise of credit is exciting: A bank says, “we trust you and think you are a good bet – here’s a line of credit to spend as you please.” Add to that impressive signup bonuses, bonus points, rewards, and other promotions, and the thrill of just one credit card isn’t enough.
Seeking credit too quickly, however, can impact your credit score negatively. Hard inquiries, the credit pull most card issuers require when applying, stay on a credit report for 24 months. However, the major effects dissipate after a few months.
Too Much Credit = Too Much Debt
Perhaps the biggest credit card trap for first-time credit card holders, however, is getting too many cards and maxing them out. Those new to credit may lack the financial skillset needed to use credit products correctly. They may see a blank check and forget that debt needs repaying.
When those without experience enjoy new credit a little too much, soaring debt is the result. Even those who mean well and try to budget can find themselves barely afloat in a sea of credit card debt.
Use Common Sense to Avoid Credit Card Traps
The critical takeaway from this article is that simple credit card traps are easy to fall into. Fortunately, using common sense can greatly assist in getting the most out of a new credit card.
Avoid the desire to spend the entire credit line – don’t max your card out. Instead, try to keep your credit use within reasonable limits – less than 30% is ideal. This will show lenders that you know how to use your credit responsibly.
Make sure to note your billing statement due dates carefully – and set up automatic payments, if possible. This step will help you avoid late or missed payments. Also, keep up to date on your latest credit card terms and conditions. Don’t let an unknown fee surprise you.
Related Article: 10 Common Credit Card Traps to Avoid