Costly Credit Card Mistakes
When using your credit card, there are many benefits, such as cash back or the convenience of swiping your plastic at checkout. However, there are some mistakes you can make that could cancel out the benefits of using a credit card.
Not paying off the balance each month
One of the many reasons you may have obtained a credit card is for the rewards. For example, many of these cards offer a certain percentage of cash back on purchases made. This can be a great benefit if the card is used responsibly. However, if you are unable to pay off the balance each month, the costs could outweigh the benefits. These cards generally come with higher interest rates because of the rewards they offer, so if you don’t cover the balance you could find yourself accruing interest and building credit card debt.
Closing an account
While closing a card after you just paid down a significant amount of credit card debt can be therapeutic, it could also hurt your credit score. That said, you should never close a credit account. Instead, just use it from time to time, so the provider will report the positive behavior to credit bureaus. By closing an account, you are increasing your debt-to-income ratio, which has a negative impact on credit scores. It also shortens your credit history, another factor that can negatively impact your score.
Ignoring certain credit card perks
Credit cards offer their users numerous perks, such as extended warranties and purchase protections. Oftentimes, people aren’t aware that these are available to them and don’t take advantage. That said, when you apply for a credit card, it is important to look into all of the perks that are available. This can help you get the most out of your card.
Signing up for rewards you won’t use
Many times, credit card providers will use rewards program to draw people to their cards. However, before signing up, you should be sure that you will actually use the rewards. As previously stated, these cards usually come with a higher interest rate, so if you don’t use the rewards you could find yourself with a credit card with a high APR. That said, don’t be enticed by a rewards card that offers frequent flier miles if you only fly once every couple of years.