Credit cards are efficient and easy financial tools to use. But these cards can create a lot of issues if you let credit use get out of hand. Using credit cards the right way can help you achieve financial goals but uncontrolled credit use can lead to a much more stressful life.
Don’t make these credit card mistakes that could cost you money and hurt your credit.
Use credit cards sparingly
You need to know your money pitfalls. By knowing your weaknesses, you can guard against maxing out your card. Even if you pay the balance in full later, it can still affect your credit score. It’s recommended to not use more than 30 percent of your credit card’s limit. For even better credit scores, experts recommend using less than 10 percent. In fact, pay your entire balance in full each month so you’re not paying interest.
Don’t carry a balance
If you carry a balance on your card each month, you may be losing more than you realize. Interest payments tap into your wallet and cut away at your financial security. Simply sit down with a few recent credit card bills and tally it up. Credit scores are also at risk if you continuously carry a balance on your card. Credit scoring systems look at your credit utilization rate to calculate your score. The higher the utilization the bigger the lowering impact on your score.
Make more than the minimum payment
By paying just the minimum amount listed on your bill, you may be paying twice or three times more for the item you bought. Is it worth it? Interest fees, late fees, and over-the-limit fees will cut into your cash flow.
Review your statement
Be aware of your spending habits. Once you know where you are spending your money, it will be easier to see where you need to cut back. It will also help you catch mistakes so you can let your credit card company know right away. Want help monitoring your spending? Use a financial tracking app that will categorize your spending and send alerts. Find a financial tracking app in the marketplace.
Don’t use cash advances
Cash advances will cost you big in interest rates. Such fees are usually higher than the regular rates you pay on your credit card. Most cash advances begin accruing interest the day it’s advanced. There are no grace periods you typically find with credit card purchases.
Applying for credit too often
Despite any reward program the credit card company may offer, don’t charge more than you can pay off in a month. Also, be careful when making a credit card application. Apply for a card you are most likely to qualify for. A failed application still leaves an inquiry on your credit report.
If you’ve been afraid of wading into the world of credit, take heart. Don’t forget that there are financial advisors and other professionals who you can consult about your money management decisions. By monitoring spending and using some solid financial advice, it’s possible to avoid debt and build up your credit rating. Learn how to spend mindfully and control credit to support your financial wellbeing.