It is very easy to get into an enormous credit card debt. Even if you are paying monthly on your debt. This is because it is easy to take credit cards for granted. You may not know, but there are do’s and don’ts of credit cards.
When one of these rules are broken, getting penalized by your credit card company is the least thing you should be worried about. For someone trying to build his or her credit, this could bring your credit score down.
Using a credit card, comes with a lot of responsibilities. A credit card is one of the things which can ruin your credit score, or build your credit history. Having said this, here are the worse credit card mistakes you should avoid.
Important Credit Cards Do’s and Don’ts
These are the credit card mistakes to avoid.
1. Do Not Miss Your Monthly Payments
Your payment history affects your credit score. A late payment on your credit card looks bad on your credit history. Besides, penalties of missed payments can rack up a lot of money for you. This is where you start seeing some outrageous charges on your credit card.
If you miss a credit card payment, the average maximum late payment fee on a credit card is $35. This is according to U.S News Report. Imagine, paying up to $25 because you miss a monthly payment of a $15 debt. It is outrageous, isn’t it?
Well, this is what can happen when you break one of the do’s and don’ts of the credit card industry. Always make sure you have enough income to repay, before you pay with the card. Also, try to set up automatic monthly payments which goes directly towards your debt. It reduces the chances of you missing a payment on due dates.
What Are the Consequences Of A Late Payment On A Credit Card?
The consequences of a late payment on a credit card debt includes a raise in interest rate, credit debt and monthly payments. Overall, this will make it increasingly difficult to get out of your debt. Hence, why it is a good idea not to miss a monthly credit card payment on due dates.
In case your missed payment is a result of a misfortune, you can negotiate a credit card late fee. Credit card issuers can waive your late fees. However, this may be a one time waive.
You can read more on what happens if you stopped paying your credit card debt.
Remember credit card companies expect to make profits from issuing their cards to you. Therefore, they will do whatever they can to make sure you remit payments. And, this may include penalizing you or waiving their late fee a few times.
2. Never Loan Your Credit Card To People
Should you loan money to your friends, my dear reader?
When I was in college, one of my classmates often came to class late. It turned out, he was working long hours to pay off his credit card debt. His girlfriend then, spent $4000 on his credit card.
His life lesson stuck with me ever since. And, why am I telling you?
You cannot begin to imagine the amount of stress that comes with loaning your credit card to people. Not only can this damage your relationships with people, but also it can ruin you financially. I am talking about unknown charges popping up long after they have given your credit card back to you. If that ever happens to you, you can dispute the credit card charges.
Loaning your credit card to people is the biggest mistake you can make when using a credit card. Keep your credit card to yourself. Never loan it to anyone, because they may spend more than you can afford to pay back.
3. Never Max Out Your Credit Line
What does maxing out your credit card mean, my good reader?
It means spending almost all of your credit card limit. Your credit limit is the maximum amount you are allowed to spend on your credit card. It is important you do not spend this amount, otherwise you will be penalized. The penalty can come in the form of a higher interest than usual. Or worse, points deduction on your credit score.
Here is an article which elaborates on what happens when you max out your credit card, so you can grasp how greatly it changes your life.
What Is Considered Maxing Out A Credit Card?
Spending half of your maximum credit amount is not considered a max out. Let me elaborate with an example.
Let us say your credit limit is $3000; when you spend the $3000 limit, it is considered a credit max out. Unless you pay down on the $3000 before the next payment date, you will be penalized.
Such penalties include a credit limit fee, a bad credit report, a credit use revoke and a change in interest. Usually, the interest rate on debt increases rather than decrease. However, every credit card issuer in the industry has different policy. Be sure to inquire, before you apply for a credit card.
4. Do Not Cancel Your Credit Card Abruptly
The bad things about credit cards are automatic charges, which may affect your credit score after cancellation. It has happened to me. I cancelled a credit card abruptly, but some lingering charges caused a post-cancellation debt.
This was after my debt was reset to zero! Can you believe it?
As a result of this newly created debt, my credit score dropped significantly. This is because I did not know I had such charges. Dude, I was so pissed I had to reapply to correct the problem. And, it took a year to get my credit score back to the good range again.
To avoid credit card debt problems, make sure you call your issuer to confirm you are good to go prior to canceling your card. It will save you so much headaches, especially the time involved in rebuilding a damaged credit score.
5. Do Not Purchase A Car With Your Credit Card
Should you use your credit card to buy a car?
No, a car purchase is one of the things you should not spend on a credit card. This is one of the common consumer mistakes. Now, I want you to imagine you have a 25% interest rate on your card. If you bought a $10, 000 car, the total interest rate payment on a $10,000 car will be $2500. This is high, compared to interest rates offered by banks for car purchases.
Therefore, refrain from purchasing a car with your credit card. I always recommend saving a quarter of your car cost for down payment, prior to purchase. Then, get a loan from a financial institution which offers low interest rate on loans for the rest of the car cost.
6. Never Gamble With Your Credit Card
You cannot use your credit card to gamble in a casino. However, some online gambling allow the use of credit card. This is not a good venture, any rational adult would like to get into.
The reason is the amount of financial harm it can cause you. I am talking about back-breaking debt, which can leave you penniless. In fact, to be penniless as a result of online gambling will be the least of your worries.
You can get in trouble for gambling online in a few states. This is because these states actually considered it illegal for people to gamble with their credit cards, whether it is online or casino places. So, please steer away from using your credit card for such purposes. Use credit cards wisely.
7. Try Not To Use Your Credit Card Internationally
Credit card issuers charge an International fee, whenever a transaction is done outside of the United States of America. Usually, the fee ranges from 1% to 3%. This is an expense I recommend you to avoid.
Not only is this fee charged, but also you will be charged a transaction processing fee. Remember credit card issuers charge places to process your transactions?
Sometimes, some places would rather have you pay the processing fees rather than them. When the transaction is done internationally, this processing fee can be very high. This is because of the difference in currency exchange rates, amongst other things. Be aware of this, when you are considering using your credit card for international transactions.
Having hit on all these points, I want you to be quite responsible after you have gotten your first credit card. Otherwise, you will find yourself in some serious debt.
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