5 More Silly Credit Card Mistakes Nearly Everyone Makes
Ever wish there was a sort of Driver’s Ed for credit cards — or even just a Complete Idiot’s Guide?
While there is no law requiring you to learn about credit cards before the training wheels come off, you can save yourself lots of headaches — and money — by reading up on some of the most common credit card mistakes that people make.
In the first article in this series , we covered some common — and costly — credit card blunders that nearly all of us make at one point or another. Here are 5 more foolish credit card mistakes that you may not realize you’re making.
Silly Mistake #6: Juggling too many credit cards If you’re one of those people who have never seen a credit card offer you don’t like, chances are that you’ve amassed a sizeable collection of credit cards. For people with excellent credit, tantalizing credit card offers abound. Not surprisingly, Americans, on average, have 3-4 credit cards, and many have more than 10.
However, applying for credit cards frequently may dent your credit score. Furthermore, it’s important to use all the credit cards that you do have. Card issuers are more likely to close or scale back credit limits on unused accounts — and that could also hurt your credit score.
At the same time, using too many credit cards at once sets you up for trouble: With payments due on numerous credit cards each month, it’s a lot easier to overlook a payment. And if you overlook a bill for more than 30 days, it will cause a lot more harm than “simply” a $25-35 late fee. It will pull down your credit score for a very long time.
How to avoid making this mistake again: Keep the number of credit cards that you use each month to three or less. If you’re concerned about credit accounts being closed or limits slashed, cycle through your credit cards so that they are used regularly (for example, every three or four months). You should also synchronize your credit card payment due dates to make it easier to keep track of when bills are due.
Silly Mistake #7: Paying unnecessary fees Would you send an extra $25 to $39 to your card issuer if asked? Of course not. Yet, tens of thousands of cardholders pay that much in penalty fees on a regular basis. Prior to the Credit CARD Act of 2009 , Americans paid more than $15 billion a year in penalty fees alone. And even though many fees have been limited following the new credit card rules, other fees have increased considerably and, in some cases, new fees have been introduced.
0% Balance Transfer Credit Cards Will Not Last
Have you ever been attracted to a credit card because it promises you an outstanding interest rate that seems just too good to be true? Most of us have at some stage jumped for one of these attractive offers. There are a growing number of credit card providers out there that will offer you 0% deals on either balance transfers or purchases, and sometimes they just seem too good to resist.
Particularly if you have a large outstanding credit card balance that you are currently paying a lot of interest on, these offers will be very tempting. In fact, many 0% balance transfer offers will save you hundreds of pounds on interest that you would otherwise have had to pay on your credit card balance. But no matter how attractive such offers may appear at the time, you should only ever take on another credit card if you have taken the time to review your finances and are satisfied that it is the right financial move for you at this time.
To look at a typical example, suppose you have one thousand pounds outstanding on a credit card that charges 10% APR. This means that over the course of a year, this balance will cost you 100 pounds in interest charges. Now suppose you find a credit card that offers you 0% on balance transfers for six months. Well it is pretty obvious that 0% is better than 10 and if you were to take up this offer, assuming there are no balance transfer fees, then how much will you have saved over the six month interest free period? The answer is 50 pounds. However, what will the interest rate revert to once the interest free period has come to an end? This is something you should be thinking about before you opt for the credit card, and not when the interest free period is about to expire and everything is more urgent. Suppose, for the sake of our example that the interest rate reverts to a rate of 25%. This means that over the next six months you will pay £125 in interest.
While this is a very simple example, it illustrates an important point when it comes to 0% balance transfers. In the example above if the customer had stayed with his 10% card, he would have paid £100 in interest over a 12 month period. In the same period, by opting for a 0% balance transfer for six months that then reverted to 25%, he ended up paying £125.
The point to remember is that just because a credit card offers you 0% does not mean it is the best deal out there. Look at the long term rates that the card will offer you, and compare these to the rates you are already getting from your credit card. If your existing rate is better than the rates that you will get from the new card once the introductory offer expires, then maybe you should remain loyal to the card you have.
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