Credit cards have so many inherent options, rates and rules that their use can be confusing at times.
Additionally, many consumers are unaware of certain pieces of information regarding the credit industry that are integral to optimal credit card use.
Simple mix-ups or lack of knowledge result in many consumers making mistakes when using their credit cards.
Here are 10 common mistake credit card users need to be on the watch for to avoid potential fees and headaches.
Incurring Unnecessary Overseas Costs
Before traveling abroad, make sure that your credit card does not have any foreign transaction fees. Check that your network is accepted at your destination and notify your issuer of your travels so your card is not suspended due to suspicious activity.
Similarly, refuse any foreign merchantâ€™s offer to convert purchase amounts into U.S. dollars in order to avoid outrageous markups for this â€śservice.â€ť
Opening a Credit Card Unnecessarily
Having both unused available credit on your credit cards and high credit lines can help your credit score. However, opening card after card begins to look bizarre, and each time you open a new credit card your credit score may take a hit of approximately 10-20 points that can last for six months to a year. Before open a card simply to obtain a one-time reward you should consider whether you are comfortable with the potential short-term credit score hit.
Misunderstanding Balance Transfers
Many consumers see offers for 0% interest on balance transfers and think that the process will be free.â€”but that is not the case. Keep in mind 0% balance transfer offers typically have fees of 3-5% of the amount transferred. Consumers can avoid paying interest on the amount transferred though, as long as they pay the balance prior to the 0% offer expiring.
Sharing Credit Information
As bad as it may sound, you may not want to trust even your closest relatives or friends with your credit card information.
If you do give this information to someone and something goes badly in your relationship, (think divorce), or that person hits a rough patch, he or she may be unable or unwilling to pay you back for any purchases made, and you will be on the hook for them.
Similarly, in the event that you decide to authorize a child as a user, do so in a way that allows you to place a limit on your childâ€™s spending. Without limits, anyone with access to your credit card account may be able to make costly charges before you notice. And again, in the end, you will be the one liable for the damage.
Paying Unnecessarily-High Interest
The CARD Act allows consumers with histories of payment issues to request a lowering of their interest rates after six months of on-time payments. Therefore, be mindful of your payment status and request a decreased rate, if applicable.
Similarly, depending on your credit situation, you may be able to find a credit card that has lower interest rates than your current card. This is especially true if you are carrying credit card debt and have been distracted by your credit card rewards into getting a higher interest rate credit card than you should.
Taking Cash Advances
Using your credit card to get a cash advance has the potential to be extremely costly because usually interest rates of above 20% are applied to the amount of the advance beginning the day you take it out.
Many credit card companies have processing fees of at least $10 for such transactions as well.
Additionally, you should evaluate your motives in taking out a cash advance. Is it an emergency? Consider the fact that one of the most popular places for cash advances is the casino, where a need for cash is not an emergency, though to some it may seem like it at the time.
Exceeding Credit Limits
The CARD ACT requires a consumer to expressly allow charges that exceed his or her credit cardâ€™s limit. Some consumers opt-in for this ability in order to avoid the potential embarrassment and negative business implications of having their card rejected. Still, you are better off placing a hard cap on your limit and keeping track of how much available credit you have throughout the month because overages can result in over-limit fees and trigger an interest rate increase for future transactions.
Spending Beyond Your Means
This sounds simple, but it is amazing how many people spend more than they can afford to pay back. In order to avoid this, simply determine how much you can afford to spend each month and do not charge more than that amount. Additionally, you can consult a credit card payoff calculator prior to making significant purchases in order to determine the payment plan necessary to pay off the charge in a reasonable amount of time. A good rule of thumb for self discipline is to not enter into credit card debt which you cannot get out of within 12 months.
Paying Below the Minimum
Credit card companies view payments below the minimum as if no payment at all was made. Making a partial payment will not help stave off delinquency or late fees, so save your money until you can pay at least the minimum amount required.
Make sure to distinguish between a minimum payment and the total amount due. The total amount due is the sum of any minimum payments you may have missed and the current monthâ€™s required minimum. If you can afford to pay at least one minimum payment, go for it.
Credit card problems only get worse when left alone, donâ€™t ignore your creditors or let unopened bills accumulate out of fear. There are a number of ways to deal with credit card issues that are superior to pretending they donâ€™t exist.
Odysseas Papadimitriou, is the CEO and founder of CardHub.com, an online marketplace for credit card offers.