Many of us remember our first credit cards. They’re a lot like a first date or a first automobile: new, exciting, and ultimately… a disaster.
Bad dates and junk cars are practically a rite of passage, but bad credit and mountains of debt don’t have to be. Avoid the pitfalls below, or else you won’t be able to use your credit card to split the bill with a cheapskate suitor or afford repairs for that rusted-out Oldsmobile.
Not Checking Your Credit Score
Most people don’t bother checking their credit score except for when they’re looking to buy a new Toyota, invest in Calgary homes for sale, or apply for a student loan to finally get their PhD. It makes sense; that’s when it’s most important to know your credit score, right?
Well, yes, but it’s also the worst possible time to find your credit has been damaged by identity theft or reporting errors. Check your credit score regularly to monitor any suspicious activity and catch potential problems.
Making Too Many Applications
One of the reasons some people don’t check their credit score often enough is that they’ve heard that doing so actually hurts their credit score. This is a fallacy. Checking your credit score doesn’t penalize it. Hard inquiries, however, do.
Hard inquiries are when a lender or credit card issuer requests a copy of your credit report so they can determine whether or not to approve your application. The credit penalties for hard inquiries only impact your score for about 12 months, which is why it’s better to have a long history of individual penalties than a whole bunch in effect at the same time.
Missing or Making Small Payments
Another thing that a lot of people do is the bare minimum. That’s true when it comes to paying their credit card debts as it is for anything else. The higher your credit card bill, and the longer that amount stays on your account, the more interest accrues, meaning you end up paying a lot more in the long-run than was ever necessary.
The only thing worse than making bare minimum payments is not making any payment at all. Being a month behind on a payment can result in a credit score penalty of anywhere from 17 to 87 points. Being three months behind? 133 points. That’s not even taking into account late fees and penalty interest.
Using Your Credit Card at an ATM
In today’s digital world, credit is the universal currency. Well, almost. Believe it or not, there are still times when you have to pay for something with cold hard cash. If such an instance catches you by surprise, you may not be prepared. That’s okay, though; you can take out cash at an ATM with your credit card, right?
Sure, you can. But you shouldn’t. Why? Because there are transaction fees, which means you’re actually paying your credit card company money for the ability to pay someone else more money. That’s on top of the interest you’ll have to pay when your bill comes due later. Ouch.