Making mistakes with your credit card can result in a variety of negative financial effects, some long term. Every year, credit card companies reap billions in fees from consumer’s mistakes with their credit cards. Instead of having to pay these additional costs and pad banker’s paychecks, avoid these mistakes and keep the money in your pocket. Here are some of the biggest mistakes to avoid.
Not Paying More Than The Minimum Amount
Many people do not realize that the minimum amount due for their credit card payment only covers the interest amount and 2 percent of the balance. So making the minimum payment barely puts a dent in bringing down the balance, opening you up to years of paying interest on the debt before it is eliminated. Always aim to pay as much of the balance as you can to get rid of the debt quickly and limit the amount of interest paid.
Making Payments Late
Every time your credit card payment is not received by the due date, you will be charged a hefty fee and your credit score may drop. The late payment fees could be as much as $35 dollars per occurrence, added directly to your account and included in the minimum payment amount on the next statement. Your payment history is about 35 percent of your credit score calculation, so late payments can drop your score by a considerable amount.
Maxing Out Your Credit Card
Using a large portion of your available credit can be as dangerous to your credit score as making late payments. Your credit utilization ratio, the amount of credit you have versus the amount of credit you are using, counts for 30 percent of your credit score calculation. Those who use less than 25 percent of their available credit have higher credit scores and get a lower interest rate for other financial products.
Not Reading The Details
Neglecting to read all of the documentation associated with the credit card account often means that you miss pertinent information that could help you save money or cost you more. The credit card company must provide information about interest rates and fees in a physical document so the application knows exactly what they are being charged for. If the credit card you are considering charges numerous fees for administrative costs, you would be better off applying for a different card.
Not Reviewing Your Statement
The easiest way to discover if your account has been compromised is reviewing your statement each month. During your review, look for any charges that you do not recognize or any single purchases that you were charged multiple times for. The sooner the issues are discovered, the easier it should be to fix the problem and get you your money back.
The credit card industry has become increasingly competitive over the last decade, with many credit card companies now offering reward credit cards with lucrative perks to entice new customers into signing up with them. While the rewards for these credit cards are prominently advertised to potential customers, many of the other features of the credit cards are not as obviously displayed. It is important to review these other features as well before deciding whether the reward credit card is the right one for you. Here are the reward credit card features you should consider before signing up.
Annual And Maintenance Fees
The first thing you should review when signing up for a reward credit card is whether you will be charged an annual fee or account maintenance fees for carrying the credit card. Many reward credit cards charge users an annual fee for the privilege of having the card, with the amount automatically charged to the card every year on the anniversary of its acquisition. Annual fees and account maintenance fees can be expensive, effectively reducing the benefit you get from earning rewards with the credit card. If you will not earn reward amounts higher than the fee amounts with your regular use of the reward credit card, then that card is not the right credit card for you.
Interest Rate For Purchases
Another thing that you should take into consideration is the interest rate you will be charged for purchases when using the reward credit card. Many people make the mistake of assuming that the interest rate for purchases on a reward credit card will be competitive with other credit cards on the market, but this is often not the case. Some credit card companies charge a higher interest rate for their credit cards that offer rewards to offset some of the costs of the rewards they will be issuing to customers. Make sure the reward credit card you are considering offers a competitive interest rate for purchases before signing up for the credit card.
Interest Rates For Other Transactions
Many credit cards have different interest rates for different types of transactions made with the card and reward credit cards are no different. So you are not surprised by a high charge at a later date, review the interest rates charged for balance transfers, cash advances, foreign transactions, and any other types of transactions that can be made with the card. Knowing what these interest rates are will dictate how you can use the reward credit card to your best advantage.
For the people that find that they owe more taxes to the Internal Revenue Service (IRS) for the 2014 tax year, paying that tax bill could be a problem. The amount of your tax bill is due by the last day to file income tax returns, April 15. If you have not prepared properly, the amount of the tax bill could create a significant financial hardship. To ensure that they can pay their tax bill on time, some people resort to using their credit cards to pay their taxes to the IRS. However, many of these people find that paying their taxes with a credit card can result in hefty fees that create a considerable amount of debt for the taxpayer. Here are some things that you should know about paying your tax bill with your credit card.
Taxes Must Be Paid Through A Third Party
The IRS does not accept credit card payments directly like they accept checks and bank account transfers because they are prohibited from paying the servicing fee that credit card companies charge merchants for authorizing transactions. This means that the taxpayer will have to go through a third-party payment processer to ensure that the payment made with their credit card is sent to the IRS in a form that they will accept. While handing your credit card information to a third party that has not properly been vetted is risky enough, it will also cost you more than making a payment to the IRS using other methods.
These Third-Party Payment Processers Charge Additional Fees
The fees paid to third-party payment processers that handle credit card payments for the IRS can be significant depending on the method used. If you use a debit card that uses the Visa or MasterCard network for processing payments, you may be able to get away with a flat charge of between $2.50 and $3.50 for making the transaction. If you use a credit card issued by a credit card company, you are often charged a percentage of the transaction as the fee. These fees can be as high as 3 percent of the amount of the transaction. For a tax bill of $5,000, this fee can be as much as $150, a significant amount to pay just to pay a bill.
Carrying A Balance Costs You More In Interest
If you are unable to pay off the amount charged for your tax bill before the end of the billing cycle, you will also be charged interest on the balance on your credit card. Carrying a balance on a credit card is one of the worst ways to spend your income because paying interest gives you no financial benefit other than allowing you to defer paying the entire amount for a period of time. With some credit card interest rates approaching 22 percent for purchases, the amount paid for the tax bill can quickly snowball into an enormous amount if you are only paying the minimum payment for your credit card. Over the course of a year, that $5,000 payment can generate another $1,100 in interest payments that must be paid to clear your balance.
Today, more people are using credit cards to make everyday purchases than ever before. Many of us obtained our credit cards when we were younger and we continue to use it because it is a convenient payment option for us. However, as time goes by, the credit cards we hold may stop being the best credit card for our needs. Here are some of the signs that indicate it may be time for us to switch credit cards.
Your Credit Score Has Increased
If your credit score has increased significantly since the last time you applied for a credit card, you may be able to get a better deal when you apply for a new credit card. The interest rate that you are charged for credit card purchases is directly linked to how high your credit score was when you first applied for the credit card. If your credit score is higher now, you should qualify for a new credit card with a lower interest rate and lower or no usage fees.
Your Credit Card Does Not Offer Relevant Rewards
Because the credit card industry has become very competitive with many new players entering the market, many credit card companies are offering attractive rewards for obtaining and using their credit cards. Some credit cards offer cash back on purchases while some others offer points that can be redeemed for travel or other things that you want. If you use credit cards frequently, these rewards can be lucrative. If the credit card you are currently using does not offer relevant rewards that you can use, it may be a sign that it is time to switch credit cards.
Your Credit Card Has A Low Limit
Credit cards issued to those with less than optimal credit generally have lower limits than credit cards offered to those with higher credit score. If you obtained your credit card before you were able to build up a good credit profile, there is a good chance that you are holding a credit card with a low limit. Obtaining a credit card with a higher limit will give you more purchasing power and may raise your credit score by altering your credit usage ratio. It is important to remember to only spend what you can afford to pay off when obtaining a credit card with a higher limit because you can quickly get in over your head overspending on a credit card with a high limit.