Use Common Sense with Credit Cards to Keep Your Credit Score Up
Understanding Credit Cards
1. Don't Have Too Many.
Experts recommend that you have no more than two credit cards. If you're stressed about money, having too many cards at your disposal can be addictive. Choose cards that best suit your needs, and nothing more.
2. Be Wary of Offers
Just because you get lots of credit card applications in the mail doesn't mean you can really afford to have more credit. Often, these applications are from loan centers who want to find customers who will spend a lot and pay lots of interest. Despite what the offers may say, you haven't been chosen because you have a great credit score. In fact, the lender probably thinks that you're likely to be a bad spender, racking up high debts, missing monthly payments, and paying lots of interest. It's a fact that the worse your credit report and scores are, the more offers you'll get — because lenders know they can count on you for late fees and over-limit fees. It's actually rather insulting.
3. Look Carefully at the Terms
You should look at the interest rate and find low ones, but that's not the only factor to take into consideration. Lenders can and will raise your interest rates, and they don't have to have a reason for it. If you intend to pay back the balance every month in full, the interest rate doesn't matter much anyway, so look at annual fees, late charges, and other factors.
4. Read the Fine Print
Usually, the credit card offers that come in the mail have a basic sales pitch and then some tiny writing with lots and lots of paragraphs talking about the specific terms of the card. If some of the terminology baffles you, don't be embarrassed. Call the loan center and ask for clarification. If you don't like what you're hearing, reject the card.
5. Teaser Rates Aren't Always Good
One of the main ways credit card companies get new customers is by offering low introductory rates. The problem is, once that "teaser" rate has expired, the new interest rate is often exorbitantly high.
6. Variable Rates Are Scary
Even accountants and other number-crunchers have a hard time comprehending and predicting variable rates, so what hope is there for a regular person? If you're not well-versed in how variable rates work, you should probably skip that card.
7. Be Aware of Late Fees and Other Penalties
Even if your card has a great interest rate, it might have other hidden drawbacks — like the late fees. What's more, many cards reserve the rate to jack up your interest rates sky-high if you're ever late on a payment, thus turning that dream rate into a nightmare. If you're having financial troubles, it can really mess up your credit score.
8. Grace Periods
Many credit cards offer a 25-day grace period wherein, if you pay the balance in full, there are no interest charges. However, not all cards do this. With some, you'll pay finance charges no matter how fast you pay off the balance. Some have grace periods of different lengths, too, so pay attention.
9. Don't Just Pay the Minimum
Many credit card customers, due to poor planning or forgetfulness, often make just the minimum payments each month. But since most credit cards have comparatively high interest rates, that means the finance charges rack up quickly. Furthermore, credit card companies can raise your minimum payment anytime they want, and they might wait to do so until it looks like, from your payment history, you're having financial troubles.
10. Avoid Auxiliary Services
Many times, when you get your new credit card, the loan center or lender is liable to give you a variety of offers for other services — travel clubs, credit insurance, and so forth. These are nearly universally raw deals.
One example is card protection. This is where you pay $50 or so every year so that if someone commits credit card fraud against you, you're not liable for it. The thing is, federal law says that you're only liable for up to $50 on fraudulent use of your card anyway. So with card protection, you're paying for something you get from the law anyway!
11. Set Your Priorities
When you undergo financial struggles, choose which bills must be paid before any others. Obviously, the necessities of life should come first: your house, your groceries, your clothes. Avoid credit cards where the lender can claim the equity in your house as collateral. A house is by far the most lucrative thing most people own, so never put it down as security for a loan.
12. Be Careful When Card-Hopping
Lots of consumers like to use the low introductory rates to their advantage by hopping from one card to another, always switching before the higher rates kick in. That's a fine idea in theory, but beware: The interest rate after the introductory period is usually exorbitant. If you lose track of time and forget to switch before the low period ends, you'll be sorry.
13. Don't Be Afraid to Cancel
If you don't like a credit card, you can cut the thing up and cancel the account. You'll still have to pay any outstanding balances, of course, but it sends a message to the credit card company that you won't be adding any new purchases to their wealth. Sometimes lenders will change their terms or lower their interest rates to keep customers from canceling.
14. Live Within Your Means
You can't coast forever on money you've borrowed, so make sure you're not using your credit cards to finance a fancier lifestyle than you can actually afford. Don't take new, higher credit limits just because they offer them to you. Stay sensible.
15. Know What Your Rights Are
If there's a mistake in your credit card statement, you are legally entitled to have them investigated and corrected. Check your bills carefully each month and make sure you can identify every purchase. If there's something amiss, notify the credit card company at once. While the matter is being investigated, you do not have to pay on that charge, and you cannot be marked as delinquent.
Following these tips can help you and your family be more cautious with your credit cards and continue to have good credit scores.
Copyright © 2007-2010 www.unioncreditreport.com. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Comments
Bradley, 07:23 AM, August 29, 2007
Thanks for a list of recommendations. It's really a bit dangerous for me to apply for a credit card knowing nothing aboiut it.
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