9 Credit Card Pitfalls to Avoid
Published on June 18, 2007 9:09 PM ESTWhen it comes to credit cards, read the fine print. This is especially true if you are applying for a new card, transfering a balance or increasing your credit limit. However, many card holders find that reading the monthly statement is very important as well since credit card issuers have the right to increase your APR for any reason with a rather short notice.
Credit cards can be a good tool for managing your finances, keeping track of spending, protecting you from fraudulent purchases and letting you earn rewards. And once you learn how to do it wisely you don't need to deal with unwanted surprises. Here are some things you should know about credit cards:
1. If you are applying for a new card, consider how this will impact your credit score. New requests for credit can lower your score. This may be especially important if you are planning to apply for a mortgage in the near future.
2. If you are transfering a balance, balance transfer APR is not the only things you should look at. Many cards impose a balance transfer fee of around 3% with a minimum and a maximum. There may be other fees as well.
3. How long will the balance transfer APR offer be in effect and what will be the APR after the offer expires? If you intend to carry the balance for a while, consider finding an offer that will not increase your APR until the balance is paid off.
4. When you make payments to your credit card account, lower interest balances are usually paid off first. What does this mean? For example, you may transfer a balance of $2,000 at 0% APR, and then make $1,000 in purchases at 15% APR. At the end of the month, when you make your payment of, say $300, this amount is subtracted from the 0% APR portion, so now your outstanding amounts are $1,700 at 0% APR and $1,000 at 15%.
5. Banks like to send out new pre-approved offers to existing card holders. But before switching over to a new card, you should know that according to a credit agency you will be opening a new account which may lower your credit score.
6. Avoid missing your monthly credit card payment at all costs. If you miss it even by a day, this will show up on your credit report. A missed payment will also usually trigger a very high APR and a late payment fee. And who wants to deal with a 29% APR on their credit card balance? A missed payment stays on your credit card for a while, lowering your score for future auto loans, mortgages, etc.
7. If you decide to close a credit card account, get something in writing. Sometimes card holders think they've cancelled an account but it keeps on showing up on their credit reports. That's because an issuer did not properly close your account. So when you call on the phone requesting that your account be cancelled, ask that a letter is sent in the mail confirming that it's been done.
8. Before you accept a credit card offer at a department store to save 10%, think it over carefully. Another credit card impacts your credit score and means that you'll have to remember to manage yet another account.
9. Always read the fine print on your monthly credit card statement. Banks have the right to increase your APR at any time, even if your payments are on time.
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