Credit cards are amazing financial tools that allow consumers to have a great deal of flexibility and purchasing power. Unfortunately, many consumers don’t have the discipline or the financial ability to simply pay off their credit card balance every month and for some consumers credit cards become a curse rather than a blessing. A key to remember is that just because a credit card issuer gives the cardholder the ability to carry out a certain transaction doesn’t mean that transaction is a good idea for the consumer.
Credit card transactions are important because your credit history is one of the key elements in being able to finance the purchase or a home, a car, or other sizable financial events. Making the wrong decisions with your credit card can make financing your dreams in the future much more difficult. Here are some credit card transactions to avoid as much as possible to keep yourself out of harm’s way.
Cash Advance: It seems harmless enough, using a credit card like an ATM card to access cash instantly. However, the penalties for a cash advance are generally very stiff. There is almost always a few associate with receiving the cash, interest starts accruing instantly instead of after a grace period, and the interest rate attached to that cash advance is usually at a higher rate than your rate for other types of purchases. If the only way you can get your hands on some cash is with a credit card advance, it’s time to evaluate your overall finances because there are deeper problems in that situation.
Missing A Payment: It’s estimated that between 30% and 40% of your credit score is based on your ability to make payments on your debt on time. A late payment hurts but many late payments aren’t reported to credit scoring agencies. Missed payments are devastating to a credit score. In addition to the late fees and interest charges you’ll accrue, your lower credit score will make every future loan more costly and more difficult to obtain for years to come.
Balance Transfer: Many people with credit card debt are constantly playing the game of transferring balances to a new credit card with no interest for a promotional period of time. Every balance transfer is a new credit card application though, and about 15% of your credit score is based on having a reasonable number of credit applications. People with excessive applications signal to creditors that they’re high-risk borrowers.
Having Multiple Credit Cards: College campuses used to be targeted by credit card issuers because by offering a hat, a pair of sunglasses, or some other cheap trinket, student would line up to sign up for a new credit card. Retailers understand this game as well, offering discounts on purchases to customers who sign up for a card that day. Each new card is another credit application and soon keeping track of all of these balances becomes more trouble than the discount is worth. In addition, having multiple credit accounts increases the likelihood of situations that involve fraud or identity theft. A better idea is to have one card that offers rewards, one with a high spending limit just in case, and one with a low interest rate if you are carrying a balance.