So we’ve all been there, spend a little too much maybe, and over indulge a little some more? Then bam! that credit card statement is comes in and is here to stay, just like your mother-in-law! So how do you avoid these situations? Read about the dangerous credit card behaviours to stay away from below.
1. Taking Out Cash Advances
A cash advance is taking out cash from your credit card. A cash advance can be costly. It usually comes with additional fees up front from 2%-5% of the amount and the interest starts right away until the amount withdrawn is paid back. Cash advances usually have a higher interest rate than regular credit card purchases. Cash advances should only be used in emergencies.
2. Ignoring Your Credit History
Ignoring the impact your actions have on your credit history can be costly for you and your future. The more your credit score declines the less likely you are to get approved for important credit products such as a mortgage or a student loan.
When was the last time you reviewed your credit profile and reviewed the information that comes with it? It’s easy to assume your credit score is amazing based on what your assumptions are but there could be information there which you’ve never thought of such as errors which need to be addressed and corrected as soon as possible. Reviewing your credit profile at least once a year is a great, proactive way to ensure your credit score is healthy.
3. Paying Bills Late
Timely bill payments is one of the most important factors in setting up a great credit score. Your late payments are recorded in your credit history and will impact your credit score. Being punctual and paying on time is crucial and shows your responsibility level and trust.
If you’re struggling to make payments make sure to address the problem and call the bill/credit company to make alternative arrangements. It’s better to acknowledge the problem and let the creditor know you’re having trouble than ignoring the entire thing. One 30 days late payments can decrease your score by up to 100 points.
Consequences of late payments include being charged late fees, a higher interest on your credit owed and report to the credit bureau.
4. Spending More Than Your Credit Limit
Always stay within your credit card limit. Overspending your credit card will cause “over limit” fees to appear on your statement, which range anywhere from $25 and up.
Overspending can also decrease your credit score because it shows you’re dependency on credit and inability to control the credit balance.
Some credit card companies decline your purchases if you’ve reached the limit of your card. However, some companies have a program, if joined, that allows you to continue shopping above your credit limit.
This type of behaviour falls under “credit utilization”, which assesses how well you use your credit. It accounts for 30% of your credit score. Keep in mind, if you overspend your credit, your credit score will decrease.
5. Too Many Credit Applications
Your credit score gets checked for every time you apply for credit. The more often your credit score gets checked the more your credit score decreases. It’s not recommended to have more than 2 credit applications in 6 months. Too many applications will make you look desperate for credit and that’s a red flag for creditors. What is a great credit score? Any score over 680 is considered great.
6. Ignoring Bill Statements Received In The Mail
Just because you threw it out doesn’t mean it’s not there. Collections will call, everyday, twice a day. You’ll get letters and phone calls until it finally hits your credit bureau and before you know it, you’re no longer approved for anything! Letting the situation reach its worse is not a solution.
Simply address the problem. Call your creditor and explain your current situation, they may be able to arrange a different payment plan for you. It’s also useful to use a credit card payoff calculator to plan out your payments.
Borrow some money from family for a temporary time or lower your payments to a minimum payment until you’re back on your feet.
7. Not Reviewing Your Statements In The Mail
They say “ignorance is bliss”, well not when it comes to your bill statements. Reviewing your purchases and making sure there are no errors made on the statement is important. Companies are capable of errors, and unfortunately it’s your job to notice them.
8. Falling For Credit Card Offers In The Mail/Stores
As tempting and enticing as they sound it’s really just another credit card. Many companies will offer you additional up front offers such as bonus points, discounts and cash back just so you sign up for their card. In the
long term, it becomes another credit card on your credit history. The more credit cards you have the more likely you are to spend and end up owing more than you planned.
Many people don’t know that pre-approved credit card offers in the mail don’t mean that you are approved. It still becomes a credit application and your credit score will be checked. A lot of the times the mail in offer is an “invite to apply”, which basically means you may not be approved.
9. Not Reading The Fine Print
You don’t need a lawyer to read your credit card agreement but it is useful to read the main fine print points, especially when it comes to fees and interest and the consequences of not paying your full balance or being on time. You want to know what you’re getting into. When applying for a credit card, if you’re not comfortable reading the fine print on your own, search online reviews and ask your family and friends to go over the credit card agreement with you.
10. Closing Your Accounts
If you’re unable to make payments on your balance , closing the account will only stop you from using the card. You would still owe the balance to the creditor. It may be a red flag to the credit, indicating you cannot control your spending and had to close while there is still a balance owing. Despite closing the credit card, the account will still remain on your credit history for 7-10 years. A better option would be to build your will of not spending or cut up the credit card but not close it.
Avoiding the above ten behaviours will set you for success and, best of all, those more important credit approvals in your life such as a mortgage, car loan, student loan and more!