Just when it seems you’re moving along smoothly, credit history in tact and credit scores growing due to your superb money management skills, you come across an article that suggests you might not be making the wisest choices with your credit cards. Welcome to that article.
We’ve outlined a few mistakes many consumers unknowingly make every day across the nation; mistakes that might be cost you in the long run with higher credit card interest rates and less than ideal mortgage and automobile rates. Take a look and see if you recognize yourself in any of these scenarios.
There are so many different credit cards these days, it’s difficult to keep up with those differences, much less what they mean to your credit scores. You might have applied for a pre-paid credit card with the belief that it would help you rebuild a damaged credit history – but it won’t. You see, prepaid credit cards are really a convenient way to convert cash into a different “format”.
They have many uses – and good ones at that – but when it comes right down to it, you’re using your money, therefore, there’s no banking entity that has anything at stake, therefore, it has nothing to report to the credit bureaus. On the other hand, a secured credit card is likely what you thought you were getting. The confusion comes in since the both dynamics require you to deposit your own money initially; however, a secured credit card uses your deposit to “secure” the loan the credit card company is extending you, via your credit line.
Your money stays right where it’s at while you spend and pay back money extended you by the company. Because the bank or credit card company now has something at stake, it has something to report – your payment history. That’s what rebuilds credit.
More is Less
More specifically, too many credit cards is not a good thing in the eyes of a lender. Too many open credit lines tells a potential lender that you have many ways to access money or goods. What it doesn’t tell a potential lender is that you’d never dream of taking off on a wild spending spree at the drop of a hat. Just having those three extra credit cards stuck way back in your wallet isn’t helping either – it’s an open account, regardless of whether it’s in your wallet, your wife’s wallet or socked away in a Ziploc bag in your freezer. You should probably consider closing those accounts you’re not using.
That’s right – your credit card company is keeping close tabs on all of its cardholders. It has these incredibly complicated algorithms in place that let the company know you’re only making minimum payments. This could be interpreted as you being a higher risk to the credit card company, therefore, it can raise your interest rates. While it’s true the 2009 Credit Card Act protects the consumer from various methods of raising your rates, your credit card company or bank can still do so provided it’s given you enough advance notice. In other words, you’re only protected for a bit longer – but you’re still risking higher rates if you pay just the minimum amount each month. The solution, naturally, is to pay your balance in full, or as close to in full as possible, each month.
That Pesky Fine Print
You might think that once you’ve read the fine print, you know what it says from one offer to the next, but that couldn’t be further from the truth. Fact is, the fine print is where you learn about the rewards programs (very important since you could be missing out on great money saving benefits), late fees, the credit card company‘s rights, your rights and other information that’s there to help you before you make the decision to even apply. After all, that rewards credit card offer isn’t so rewarding if you realize you’ve been approved for points for airline flights – and you’ve never flown in your life and have no intentions of doing so now. Read the fine print – it’s there for your benefit.
The good news is that if you’re making any of these mistakes, you can take steps to correct them right now. The sooner, the better.
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