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Friday, January 27, 2012

The 7 Deadly Credit Card Sins



“Card”-inal Sins
Credit cards can be a great asset or a great liability, depending on how a cardholder uses them. While you probably won’t go to hell for committing any of these sins, the financial situation you will find yourself in afterwards can certainly cause some pain to your pocketbook and damage your credit score. Read on to find out the seven deadly credit mistakes you should avoid at all costs.

Gluttony: Bumping Up Against Your Credit Limit

Just because your issuer awarded you a $6,000 credit limit doesn’t mean you should max the card out. For starters, those who aren’t able to pay off their balances in full increase the likelihood of winding up in debt, since they’ll be subject to the interest on their purchases. Secondly, bumping up against your credit limit is likely to have a negative overall impact on your credit score.

“The closer you get to your credit limit, the riskier your credit profile is going to look,” says Chris Mettler, founder of  CompareCards.com, since it leads to a high credit-to-debt utilization ratio. Mettler says a best practice is to use credit in moderation, using only 15% or less of your total credit at any given time. And yes, you should also pay off all those balances in full by the end of the month whenever possible.

Pride: Not Checking Your Credit Score

You might assume your credit score is in fine standing based upon a presumably stellar payment history, but the truth of the matter is that credit reports can easily contain errors. And the more egregious ones, like inaccurate delinquencies or improper credit limit information, can cost you more than a few points on your accompanying credit score.

As such, consumers should check their credit report at least once a year – especially since you’re entitled to one free copy each year, thanks to the Fair Credit Reporting Act – or right before you apply for a big loan, to minimize the chance that you’ll encounter any surprises.

Lust: Applying for Too Much Credit
Lucrative sign-on bonuses can certainly be attractive, but that doesn’t mean you should apply for every credit card that’s touting one. Too many credit card inquiries – generated by lenders who are looking to see if you deserve a new line of credit – in a short timeframe can also negatively impact your credit score. Instead, apply for credit as you need it and add a new card to your payment arsenal about once a year until you’ve got three or four you can consistently pay off on time at your disposal.

Greed: Taking Out a Cash Advance
It may seem like an awesome idea to use your credit card to get a cash advance at a casino so you have some cash to gamble with, but in addition to the lousy odds you’ll have in making the money grow, the paper comes with a price.

“You’re going to be charged a significant amount of interest,” Mettler says, estimating that most transactions will carry an interest rate around 23% or higher. As such, it’s best to use a credit card only in instances where the plastic itself can be used to make the purchase… and you can pay back the funds by the subsequent bill’s due date.

Envy: Applying for a Card That’s Out of Your League
Your globe-trotting friend may continuously flash a credit card that grants them access to swanky airport lounges, earns free airfare and avoids foreign transaction fees, but don’t let jealously lead you to sign up for one of your own. Typically, cards of that caliber contain high annual fees that are only worth paying if you travel enough to justify the rewards.

Instead, ask yourself a few questions to figure out what type of credit card is more suitable to your lifestyle.  (You'll also want to check that your credit score qualifies you for the account so as not to rack up any unnecessary inquiries we were talking about.) There may be a great rewards card with no annual fee that will look much better with your name on it. 

Wrath: Closing All Your Credit Card Accounts
Those who have gotten burned by their plastic may be inclined to cut up all the credit cards in their wallet and close all the accompanying accounts, but it’s best to curb your anger. Closing accounts can negatively influence your credit-to-debt ratio, especially if the one card you’re leaving open – or transferring a balance to – is bumping up against its credit limit.

It’s better to keep the account open, but not use it, since that will keep your credit-to-debt ratio positively intact and not jeopardize the average age of your credit report.

Sloth: Not Checking Your Monthly Credit Card Statements
It can be easy to set up automatic bill pay on your account and then forget all about your credit card, especially in instances where you use it infrequently. However, it’s a bad idea to skip out on checking your monthly credit card statements entirely.

“You can be paying for things you’ve signed up for and forgotten about,” Mettler says, in addition to any fraudulent charges that may appear, courtesy of errors or – worse yet – identity theft.

By Jeanine Skowronski

17 comments :

  1. Very informative. All what you've written here are all malpractices of getting into a "friendly electronic card", but its usage is being abused. This e-card is the best financial assistance on hand if it is used sparingly and wisely. Abused it, sooner or later you'll be bankrupt due to your whims and caprices.

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    1. abused is the most common practice kaya in the end lalong nababaon sa utang

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  2. Awww. I'm guilty. But I've learned my lessons and I have been maintaining 2 cards for several years now. Yun nga lang nagbayad ako ng matindi bago ako natuto hahaha

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    1. yes,ako rin natuto na kaya kahit 1 wala akong CC.pero pag emergency ,as in emergency ,talagang malaking tulong ito.

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  3. what's a credit card? just kidding, me and my wife don't have credit cards... we are avoiding it. mas madali kasing i-avoid ang temptations kung wala. but for those who has it... this is a great reminder. Yahweh bless.

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    1. same here,wala rin kaming CC ni hubby.maghihirap ka lang kakabayad sa more than 100% interest.

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  4. As a credit card owner for many years, I have never committed any of the 7 deadly credit card sins. I think I am a responsible credit card owner then. Or maybe, I just don't love shopping for anything that much that's why I am not a big spender.

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  5. I don't have any cc - dc lang kasi hindi ako magastos. Simple lang ang principle ko sa buhay. Pagwalang pera magtiis muna. Saka na ang mga gastos nakakahintay naman. Ayoko rin magutang talaga. Si mister meron. Pero ginagamit lang namin kapag may emegency kamo. Or magbook ng flights. Mahalaga din ang cc kahit marami kang pa ng pera o maganda trabaho mo. Kasi yan din ang isang basin ng lifestyle sa abroad lalo na sa pag-apply ng mortgage. Mas mura pa ang interest ng cc kaysa ma overdrawn ka sa banko.

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  6. i want to zero out my credit card soon!

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  7. guilty? my pride says no haha...but i use credit card on online transactions and bookings, and also if u pay the balance before 45 days wala naman interest and you get to earn points which can be redeemed later...dapat lang talaga use it wisely...

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  8. eversince we do not use credit cards, we will just save if we want to buy something for our home or personal need, we do not want headaches in paying debts

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  9. My husband and I once fell into those credit card sins and mistakes. We used to have three credit cards and we learned our lesson the hard way. :(

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  10. I am an impulsive buyer and realized a credit card is not for me so I gave up mine years back and use debit card instead.

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  11. hahahhaa... love this post!!! very similar to my previous dilemna on credit cards!.. sobra nakakarelate :))thanks!

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  12. CC is an evil, it was inviting me before and almost commit with it, good thing my faith stop me heheheh

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  13. I was guilty of all of that ... now I do not have it and life is much better. Mas tahimik and I get what I need lang.

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  14. i love cc, siguro depende sa gumagamit. i always use my cc sayang kasi yung points and miles. siguro, don't swipe the card if you know that you don't have the money to pay for your due.

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