When it comes to being a responsible credit card user, apathy is not an option. No matter your credit score, there are common credit card traps that you’ll want to avoid while building your credit that would otherwise have negative effects on your credit report for years to come. Thankfully, with a little knowledge and foresight, these pitfalls can be easily overcome.
1. Intro APR Rates Aren’t Forever
Promoting low introductory interest rates is a great way for credit card issuers to attract new customers, but that amazing APR is temporary. When shopping for credit cards, it’s important to read the terms and conditions (boring as they may seem) in order to know exactly how long that low intro APR will last, and if the standard APR that follows is something that you’ll be able to manage when it comes into effect.
2. Pay Attention to Promotional Offers
Similar to how low introductory APRs can lure in loads of new credit card signups, so too can the amazing limited-time promotional offers attached to many cards. As appealing as these offers are (ranging from additional bonus points to cash back upon signup), you sometimes have to charge a certain amount on the card within a short period of time in order for them to take effect. Tens of thousands of bonus airline miles may be appealing, but if you aren’t likely to spend the money required for the bonus to trigger, that aspect of the credit card is null.
3. Don’t Push it to the Limit
Just because you could go on a shopping spree doesn’t mean that you should, particularly if it means that you can avoid accumulating unwanted credit card debt. Maxing out your card usually makes it more difficult to pay off your debt and can lower your credit score due to your high debt-to-credit limit ratio. Instead, if you can afford to do so, you should…
4. Pay More than the Monthly Minimum
Easier said than done for many people on a budget, sure, but if you only make the minimum payments on your credit card balance, you’ll be feeling the effects of interest payments in your bank account that could have been avoided. Credit card companies charge interest if you don’t pay off the balance in full each month, so the faster that you can wipe that debt out, the sooner you’ll be debt-free.
5. Stay on Schedule
Mark it on your calendar, add a reminder on your smartphone, and do whatever else you need to do to make sure you (1) remember to pay your credit card balance by the due date, and (2) actually do it. Not only can you be charged late payment fees that are likely higher than your minimum payment amount, but these infractions really add up over the course of 12 months. Even if you rely on automatic payments to make sure that your credit card is paid down each month, ACTUALLY CHECK to make sure that this payment was made to avoid the negative effects mentioned above.
6. Don’t Ignore Your Balance
If you think that your balance will be any lower or payments will be forgotten because you do not check on them regularly, you’ll be in for a rude awakening. Instead, take charge of your financial well-being and check your credit card balance every single day. Like going to the gym and eating a balanced diet, holding yourself accountable for your credit card activity can have positive long-lasting effects. Always check to make sure that your payments went through and verify the charges made on your card. Doing so can also provide insight into your spending habits and catch fraudulent activity before it gets out of hand and you end up paying for it.
7. Balance Transfers as Bandages
Balance transfers can be incredibly effective when it comes to paying down your debt, especially when you find a credit card that grants 0% APR for well over a year’s time. That said, each time that you apply for credit, your credit score can drop by as much as 35 points due to the hard inquiry that follows. Generally speaking, the longer that your credit card accounts have been open the better they reflect on your score as well, so applying for a bunch of cards at once to split your debt among them can only stop the financial bleeding for so long.
8. Cash Advance Catastrophe
Unlike a cash withdrawal from an ATM using your debit card, cash advances tend to come at a steep price. Should you find yourself at a cash-only merchant point of sale without any bills in your wallet, you may be tempted to use your credit card at an ATM to get the money needed. Doing so, though, draws against your credit line at a rate that may be double your standard interest rate, if not more so in some cases. You may also be charged a fee for your cash advance, either as a flat amount or percentage, so it’s best to avoid the situation if you can.
9. Annual Fees Aren’t All Bad
Dismissing a credit card solely because it has a high annual fee or any annual fee at all for that matter, is a great way to miss out on the value that some of its other perks bring to the table. Paying upwards of $400 a year for a travel rewards credit card may seem like a ludicrous venture, but if you’re getting thousands of dollars in value through a combination of rewards miles, lounge access, and discounts on checked bags during flights, the card quickly pays for itself.
10. Don’t Forget to Reward Yourself
All of the accumulated points on a credit card mean nothing if you don’t eventually put them to good use. Storing them for years with a particular goal in mind, such as comped airline passes or hotel stats, will be for naught if said points expire before you decide to use them. Take the time to read the fine print on your credit card’s terms and conditions to avoid such a financial travesty. Keep these 10 common credit card traps to avoid in mind the next time that you charge into a transaction, and you’ll be better prepared to lead a more financially responsible life. Your credit score will thank you for it.