Credit Card Mistakes to Avoid
Credit card companies make it very easy for borrowers to replace the cash in their wallet for the plastic card. Credit card companies spend billions of dollars on marketing cards to borrowers and making them appealing with cashback or airline miles. If you choose to use a credit card to build your credit score, be cautious of these common credit card mistakes.
Not Caring How Much You Spend
Science has proven that when you spend cash, it actually sets off the pain receptors in your brain. Spending cash will help you spend less, especially if you make it a habit. Suppose you chose to purchase items with a credit card, it doesn’t affect your brain like cash; in fact, it barely lights up any receptors in the brain. When you become detached from the pain of spending, you will spend more money on a credit card and use it more frequently, causing you to rack up debt quickly.
Don’t make the mistake of forgetting a due date. Late fees can make it difficult to pay down your credit card debt, and if you fall behind more than 30 days, it will negatively affect your credit score. Most credit card lenders now have the option of automating your credit card payments. It might be a good practice for you to automate your minimum monthly payment and then log in and add additional payments to pay off the balance.
Letting Someone Borrow Your Card
If you let someone borrow your card or if you decide to add a borrower to your account, you are responsible for any purchases they complete. Even if you have an agreement that they will pay on the card, you are still responsible for the balance. Suppose you decide to trust someone who then disappears; you could be paying on that card for years.
Waiting to Report a Lost or Stolen Card
Waiting to report a lost or stolen card can have some severe consequences. The more time a thief is allowed to walk around with your credit card information, the more damage they could do. Most credit card companies have a policy that you are required to report any fraudulent activity within 30-60 days of the occurrence; after that time period, you are responsible for any financial obligations, meaning you could owe thousands.
Not Knowing Your Credit Card Terms
You should review the terms of your credit card twice a year and what you are looking for is the interest rate, the grace period of the card, and how your lender handles late fees. Most people start a credit card with a zero percent introductory rate, but over a specific amount of time, that rate goes up and often to surprising heights. The average credit card interest rate now is 17 percent. Can you really afford to pay an extra 17 percent on whatever it is you just purchased?
Making Only the Minimum Monthly Payments
While it is true that paying the minimum monthly payments will keep you current with your credit card lender and keep your credit score in good standing, it does mean that it will take you longer to pay off your credit card debt. The minimum monthly payment will often only cover a part of the interest generated by your credit card balance. Any interest not paid off monthly will be added to your overall balance causing you to pay interest on your interest.