Most people’s first venture into establishing credit is opening a credit card. Unfortunately, many of those people are young, on their own for the first time and still figuring out how to handle their money. This can lead to a number of problems, often eventually leading to poor credit. However, opening a credit card does not have to spell disaster and can actually set you up for having and maintaining a good credit score – if you know how to handle them properly. Here are five common credit card mistakes to avoid.
Credit card due dates tell you the exact day when your payment is due, there is no excuse not to know that date. Most credit card companies will allow you a grace period of a few days, however once you reach thirty days, you will be reported to the credit bureaus as being late, which affects your credit score.
If your due date falls at an inconvenient time of the month, you can call your credit card company and try to change your due date to better fall in line with your ability to pay. Setting up automatic bill pay is another way you can avoid falling behind on your payments. Just make sure you remember you have these automatic deductions set up so you don’t overcharge your account.
Making Only the Minimum Payment
Each month there is an amount you are required to pay by your credit card company. However, it is in your best interest to pay more than the minimum payment and ideally pay your credit card off completely.
The minimum payment only ensures you are making the monthly interest payment, along with a small amount of the principle. By only paying the minimum each month you are dragging out the length of time it will take to pay off the card and increasing the amount you will pay in interest.
While most traditional credit cards offer cash advances, or the ability to take out cash, this should always be a last resort. By taking out a cash advance you will get hit with an interest charge that is more than 10-15 points higher than interest on purchases.
Cash advances from credit cards are only one step above payday loans, and you should know how much of a swindle those loans are.
Avoiding Your Credit Card Bills
If you have run up your credit card debt and cannot pay the charges or you think you will be late making payments, do not avoid those creditors. In fact, you should call them directly… seriously.
Often times the credit card company will be willing to work out some deal with you, such as lowering your monthly payments or decreasing the amount of interest you are charged. If you know you are going to be late one month, call your credit card company and inform them. Chances are they can work with you so that your credit score does not take a hit.
Closing Old Cards
You may have opened your first credit card at the age of 18 and now you’re 28 with good credit. Perhaps you don’t use that first credit card too often and you may be considering closing it. This would be a mistake.
Your credit report is not only a reflection of how good you are at making payments on time, but also of your credit history. Closing older lines of credit can actually hurt your overall credit score by shortening your credit history.
Credit cards are often our first foray into establishing credit. It is important to know how to best handle them, as our behavior could impact our entire financial future. Establishing good credit is important when you want to go buy a car, purchase a home, and even get a job. Use your credit cards wisely and it can help you meet your financial goals.
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