Believe it or not, it can be argued that a credit card could be used for every purchase, especially when it comes to rewards. By making purchases that you would have made anyways, you can earn points or even cashback, which could add up to free hundreds of dollars per year. Not only rewards, but by using a credit card instead of a debit card, if you are victim of fraud, at least you don’t have to worry about your bank account getting cleaned out with purchases on debit, and on credit you can dispute and don’t have to wait for the funds to return to you. While there are definitely pros when it comes to credit cards, you certainly can make mistakes if you’re not careful.
Not Checking Your Credit Report
If you have applied for a mortgage, loan, or even your current credit card, you know that the deciding factor that created your interest rate, let alone getting approved in the first place, had to do with your credit report. By pulling a free copy of your report at least once a year from the major credit card bureaus you can ensure all accounts are accurate and all information is yours. While you will not receive a score, you can view your score monthly on credit card statements so you can see it continue to hopefully trend upward.
A large portion of your credit score has to do with payment history, so if you miss a payment by thirty days, you can look forward to seeing that mark against you probably for the next seven years on your report and your depleting score to go along with that. Not that it will hit your report, but even missing a payment by a day can cause a late fee, not to mention a possible interest rate spike that could cost you a considerable amount over time if you continue to carryover a balance.
Maxing Out Accounts
Just as important as your payment history is what you’re actually charging on your account, and the more you charge to reach your available balance, the lower your score will go as the credit utilization is increasing. You can charge throughout the month as much as you want, but hopefully what you can afford to payoff when the statement comes, otherwise you will be charged interest as you carryover a balance and can be recipe for a financial disaster.
Closing a Zero Balance
If you did find yourself in debt and have finally climbed your way out, you can be proud, not everyone gets out without massive financial implications like bankruptcy, so it should be cause for celebration. You may be tempted to close your credit account so that you don’t go down that spending road again, but actually that could hurt your score. If you don’t want to use the account, you can just cut up the card but leave it open, and you can have the best of both worlds.