Smart SpendingSmart Spending

10 dumb things you might be doing with credit cards

Credit cards can earn you rewards and come to your rescue in an emergency, but a little carelessness can have big consequences.

By Credit.com Jul 25, 2013 1:44PM
This article comes from Adam Levin at partner site Credit.com.

Credit.com logoLike it or not, we are a credit card culture. They seem to be everywhere. They are on TV, being promoted by the likes of Jimmy Fallon, Alec Baldwin and “Ogre” from Revenge of the Nerds. The imagery is pervasive, and some places only take credit or debit cards.

Woman with credit cards (© Corbis)They are also, obviously, in our wallets.  There are an estimated 1.5 billion credit cards in use in the United States and that can make them seem pretty ubiquitous. Nevertheless, access to credit cards is a privilege not a right, and if you make mistakes, you’ll pay a price -- sometimes a hefty one.

With that in mind, we offer this list of serious credit card mistakes and their equally serious repercussions.

Credit card issuers have responsibilities, too. Many of those responsibilities are codified under the Credit Card Accountability Responsibility and Disclosure (“CARD”) Act. But consumers’ first responsibility is to themselves:

1. Paying late
A due date is not a guideline, it’s a deadline. Always make timely payments. Set up automatic notifications either by text or email and/or automatic debits from your bank. While the CARD Act mandates a set of rules that must be followed regarding, among other things, when credit card issuers and banks can raise rates on existing balances or future purchases, these things are a certainty when you pay late:
  • If you fail to pay your bill within 30 days, you will be reported as late to a credit reporting agency.
  • You will be assessed a late fee.
  • That negative information will remain on your credit report for seven years.
  • Your payment history represents 35% of your credit score.
  • In addition to facing higher interest rates on future purchases from the offended credit card company, you run the risk of paying higher rates and/or having your application rejected when you apply for other credit products.

2. Paying the minimum
If you have to pay the minimum now and again, it’s not a huge deal, but don’t make a habit of it. Depending on your balance, making only minimum payments can increase the life and sum of your debt considerably. (Try this calculator if you doubt me.) One provision of the CARD Act requires credit card bills to disclose the length of time it will take to pay off a credit card when you make only the minimum payment versus a 3-year plan. It’s an important addition, because the reality of nearly endless payments is jarring.

3. Charging anywhere near your credit limit
There may be certain life crises that require you to charge a large amount, like an emergency car repair. Try to pay down the balance as quickly as possible. Creditors look very closely every month at the percentage of your available credit that you are using. If you use more than 10% for any meaningful period of time, it will hurt your credit score. 30% of your credit score relates to your credit utilization. If your credit score declines, your cost of borrowing will increase and your access to credit will become more limited.

4. Taking cash advances
While there may some instances when you need to take a cash advance and have no other options besides your credit card, keep in mind that it is not a cheap date (often 10 to 15 percentage points higher than the interest rate on purchases). Generally, credit card cash advances only make sense compared with payday loans or a bevy of overdraft charges, but it is an expensive way to borrow money. Consider a personal loan if you really need the cash, but definitely don’t use a credit card cash advance for a discretionary purchase that you otherwise can’t afford.

5. Closing old credit card accounts
Closing a credit card account may seem like the best way to celebrate paying off a big, old debt, but consider this: Every account represents a component of your available credit and each time you remove such a component by closing it, you are reducing the pool of available credit against which all your credit balances are measured. The less available credit you have, the greater percentage you are using whenever you charge something in another account. Exceed 10% and your credit score is likely to go down. When you pay off an account, feel free to cut up the card, but think twice before you close the account. 
6. Ignoring the fine print
Everybody loves a deal and there are some delicious 0% introductory offers out there. Unfortunately, all things must come to an end and so do introductory offers. Make sure you read the fine print to understand your real rate when the music stops and the interest-free chair is no longer available. Also, never forget that even the most gorgeous introductory offers get real ugly if you miss a “principal” payment date and the creditor jumps your rate to the default rate.

7. Failing to pick up the phone
Negotiation is an American pastime. Ask car dealers. If you are running a balance and you feel the interest is too expensive, do some legwork. Check out the other guys and see what rate they would charge. If you find a better deal (including the obligatory balance transfer fee), don’t be afraid to call your credit card issuer and haggle. The worst they can say is no. In this competitive environment, banks are fighting for your business. Make them work for it.

8. Getting sucked in by your favorite brand
Never forget that sales “associates” are often incentivized to get people to sign up for a store credit card. They love to offer you the 10% to 15% discount deal today, while your acquisition ecstasy is running rampant, against the higher interest rates tomorrow when you run a balance. However, it’s amazing how unfashionable retail cards feel once the ether clears and you understand the true cost that you pay to run a balance. If you must have the discount, do the deal, but pay off the balance immediately. Just like the little black dress you couldn’t pass up that now hangs in isolation in your closet. Stick the cards in your drawer and sale away (elsewhere).

9. Failing to check your credit card accounts daily
It’s amazing how we can check out our personal email accounts every chance we get, or share everything we do with everyone we know on Twitter, Facebook and all other forms of social media, but we can’t take a few minutes and keep up with our finances! Reviewing credit accounts frequently will alert us to potential identity theft issues, as well as let us know how close we come to our credit limits. Ben Franklin reminded us that “a stitch in time saves nine.” You better believe it when it comes to credit.

10. Sending credit card information via email
The only thing dumber than entering your credit card information on a website that you discovered by way of a random email link is to send credit card information through your email account. A great number of hackers are looking forward to sharing your credit card information with their friends and associates for their profit and amusement. Their enrichment is not your mission. If you want to buy something or pay a bill online, go to the right financial or retail site, type in the correct URL and make sure it is secure (look for the lock and the “https” in the web address field).
A credit card is a vehicle. You are the driver. If you operate it safely and responsibly it will give you access to the things you want while helping you build a credit portfolio that is an asset, not a liability.

More from Credit.com:
51Comments
Aug 4, 2013 5:31PM
avatar
Use a credit card only as an extension of your checking account. Pay it off every month.

Learn to live less than your means allow.


Aug 4, 2013 6:02PM
avatar
It seems that the credit rating agencies were created by big business for the sole purpose of separating more people from more of their money. Common sense would say that canceling an account would be beneficial to you, but in their warped world it costs you in higher interest rates. Common sense would say that if you open up a store card to receive a discount then cancel the account, you're a smart shopper. Nope, not here, you're also penalized for that. Common sense would say that if I qualified for a credit line of $10,000 that I should use it. Nope, not here either. What's the point of qualifying for a $10,000 line of credit if they penalize you for using more than $1000 of it? The credit rating agencies are truly a situation of you're damned if you do and damned if you don't.
Aug 4, 2013 8:03PM
avatar
It's obvious from reading some of the posts and replies that some of you are swimming in the polluted sea of the credit industry. The banks and their shills (the credit bureaus) have a lot of people convinced that it is impossible to survive without them. However, that is a lie. You can survive without credit and you can have a comfortable roof over your head and dependable transportation OR you can believe the carpetbagger's lies and be enslaved by them. It's your choice. But, know this...they are not your friends.
Aug 4, 2013 7:20PM
avatar
I always find it amazing that trying to be a responsible person, paying off stuff on time and maintaining only one credit card actually ruins your credit....  Who came up this this garbage?
Aug 4, 2013 5:37PM
avatar
Sure, don't close the account...just cut up those credit cards...AND PAY THE ANNUAL FEE? This guy is an expert?
Aug 4, 2013 6:21PM
avatar
The Credit Reporting Agencies are run by crooks.  They do not care about the accuracy of their reports - just how many they can sell.  It is sad that the banks and credit card agencies pay any attention to them. 
Aug 4, 2013 4:07PM
avatar
When you use a crdit card on-line or on the telephone use a virtual account number. Different card companies may use a differnt name for it but those that have it enable you to use a number different from your real account number, it is only valid for one payee, for a limited period of time & with a set maximum.
Aug 4, 2013 4:06PM
avatar
I think this was written by a very young person, maybe just out of college who has just discovered common sense!  (except for that checking your balance everyday nonsense)
Aug 4, 2013 8:24PM
avatar

All but cash advances is true for retirees! If you can get a 12 month interest free cash advance for a 2% per thousand charge, AND want to pay property taxes, or propane, or cruise, etc. before taking an IRA withdraw in the current tax year, go for it! BUT be sure to payoff the toal balance before the 12 months is up or you will be hit with back interest!!!! Use their money before you use your own @ a 2% rate!!!

 

Great tool for retirees!

Aug 4, 2013 10:00PM
avatar
I'm almost 50 years old and I've never had a credit card. Saved my money and when I had the funds I made my purchases. Old school!
Aug 4, 2013 6:36PM
avatar
Credit card company's allows itself to be hacked and destroy peoples credit. The fed gov dosnt care you have been hacked and or robbed unless your the pres wife. I have a c/c but choose not to use it due to all the fraud theft and theft of services. It could take you years to fix your credit card from fraud and theft and the c/c company's love it because they just get more money. Even wait staff steal your info or money off your card for tips. Now I have great credit score and I plan to keep it that way only use cash when you go out to avoid being scrammed and it will happen to you. The skimmers at cash machines or in stores and so on , now the newest skimmer is off a cell phone that swipes cards don't fall to the scam. And like I said all credit card companies love that you have been scrammed or skimmed they get more money
Aug 4, 2013 3:56PM
avatar
'it's a 50/50 proposition. i make the purchases, you make the payments.'
Aug 4, 2013 6:51PM
avatar
I had an old card I never closed. I completely forgot I had it open, till my brother (who at one time took over my old PO Box,) Got a letter from Chase for me explaining my account was hacked and racked up thousands of dollars, and they had no contact info for me. I guess it is my fault for not giving them my new address, but I should have just closed the card and avoided all of this! FYI, it was immediately closed when I found this out!
Aug 4, 2013 10:21PM
avatar
Here's another danger you might not be aware of-online payments.  My guy has been doing them for years.  Checked his account the first few times then took it for granted things were going alright.  Got a ten thousand dollar 'adjustment' to his account.  For some reason the first payments he made came out of his account and all the rest came out of *someone else's* account.  I have no idea how that's even possible, or how the bank didn't notice it for so long.  I never did trust online payments, now I know why.  Of course the banksters are more than happy for him to repay that at 30+ percent interest.
Aug 4, 2013 11:29PM
avatar
The #1 problem with getting a credit card is getting a credit card. 
Aug 4, 2013 11:12PM
avatar
Follow the rules 100% and you will have no trouble.  Get yourself in a position whereas you pay off your debt 100% each month.  I don't give a fiddlers fart about a credit rating.  I got hit with a late fee on a card one time and I just didn't pay the $35.00.  My time is just as valuable as the credit card companies so I won't waste my time arguing with them.  Another example, Discover card only will give  you cash back awards in $50.00 increments.  I had an 85.00 balance in my cash back.  They would only allow me to put $50.00 against my debt of $93.00.  They told me I had to get that amount to redeem up to $50.00 before they would give me the credit.  I just paid off the debt, but still had $43.00 left in my cash back rewards.  They would not give me the $43.00 unless I got that amount up to $50.00.  Well darn.  I just went out and took a $43.00 cash advance and then refused to pay them plus interest and late charges.  The charges got up into the hundreds of dollars.  This could go on for years, but they are never going to get paid.  I don't care what their rules are....I have the money and they ain't gonna get it.....and screw my credit report.   Remember this, one bad mark is NOT going to destroy your credit.
Aug 5, 2013 12:54AM
avatar
Don't worry about your credit...you won't need it if you pay cash! What do you use your credit for???  If you want something PAY CASH! Learn to live differently!  The Smart way!
Aug 5, 2013 1:00AM
avatar

I have had various credit cards since I was 21 (the age of adulthood many years ago) and over the years I have only paid minimal interest because if I cannot afford something, I do not buy it.  The standard interest rate used to be 18%, about 6 to 10 points above a bank loan.  Now it is more like 15 to 20 points above a loan.

 

It does not matter what your limit is for any particular card (as long as you do not overuse the card in question), what matters is your total credit.  However, an even better reason for keeping cards is to get back at a bank.  I have somewhere north of ten cards, but only carry five and regularly use four.  Of course, if I have a problem with one of the four, I just put it in the safe and pull our another one.  Just to make sure that the banks do not cancel an inactive card, I try to use each of them once a year just to let them know I am alive.

Aug 5, 2013 12:50AM
avatar
Oh...and cut up all the credit cards! Trust me you will be better off in the long run! Never use them again...!
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT SMART SPENDING

Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.

VIDEO ON MSN MONEY

TOOLS

More