There are many Dangers Of Using Credit Cards, if you have never had a credit card before, you may be wary of the potential dangers involved. Perhaps you have heard threatening stories of credit card debt and how it has ruined your credit score.
Here are some pitfalls of using credit cards and advice on how to avoid problems. Credit Cards can provide great perks and allow it’s cardholders to earn cash back or rewards for their purchases. They also serve as tools to boost build your credit, which can be of help if you want to acquire a house or car in one day.
Dangers Of Using Credit Cards
However, if you’re aware of the dangers of credit cards, you can avoid making these mistakes while using credit cards with wisdom and using advantage of their perks, benefits, and rewards. Here are a couple of dangers of Credit cards and how to avoid them. There are namely:
Getting into Credit Card Debt
A credit limit should be thought of as a loan that a credit card provider extends to you like free money to spend. If you have a wrong attitude concerning credit cards, it could be easier for you to borrow more than you can afford to pay back.
However, credit card balances generally come with interest rates. Each time you add to your balance and don’t pay it off in full within the building cycle, you will have to pay more interest. This can it hard to get out of credit card debt.
However, the main deal here is that you be watchful of your spending. Also, create a simple spreadsheet or list of your monthly expenses. Check your spending, and make sure you’re not buying more than you can afford. Consider creating a monthly budget and figuring out how much you can afford each month.
Carrying a balance and incurring heavy interest charges
If you carry a balance over to the next month, you could end up paying a significant amount of interest. Credit card interest rates can vary based on the card and your creditworthiness, but they can run high.
If you’re carrying a high balance and having trouble paying it down, one option you may consider is applying for a balance transfer card. Some balance transfer cards offer a 0% introductory rate during a period of anywhere between nine and 21 months, meaning you won’t pay interest on your balance during that season. The best means to avoid paying interest is to try to pay off your credit card statement balance in full and on time every month.
Missing Your Credit Card Payments
The payment history on your credit card is one of the biggest factors that contribute to your credit scores, therefore missing payments can have an adverse impact on your credit. Also, if you miss a payment, you’ll typically be charged a late fee. A penalty APR may be applicable to your account too.
Additionally, your late payment may be reported to the three major bureaus. When you delay payment for more than 30 days late, and it may remain in your credit report for up to seven years. How, the only way to potentially avoid this by setting automatic payments.
With autopay, you may not need to disturb yourself about forgetting to pay your bill, but you will be responsible for ensuring there’s sufficient in your account when the automatic payment is withdrawn. Also, you can set up text or email reminders for when your monthly bill is almost due to make sure you make payments promptly.
Applying For Too many New Credit Cards at the same time
Each time you apply for a credit card, generally get a hard inquiry. This means that a credit card company checks your credit, and this check can subsequently pop up in your credit reports. A hard inquiry can lower one’s credit score by a few points, but the impact of each individual check can reduce or even disappears over time.
In fact, you may want to avoid applying excessively for credit cards or for cards you don’t need for real. Then you don’t really need to worry much if there’s a particular credit card you’re searching for. At most, you may be avoiding cards you’re unlikely to be approved for, due to the fact that you’ll add a hard inquiry to your credit report without any reward.
Over usage of your Credit Limit
However, our credit scores can be affected negatively if you have a high credit card utilization ratio. The credit card utilization ratio here refers to how much of your available credit limit. Creditors believe that when you use up to your credit limit or over it, you’ll more likely have problems repaying the money than a person with a low credit utilization ratio. Therefore approving a credit card for you is considered as a risk to any credit issuer.
Furthermore, credit card agreement is known for their fine print, and terms often give the creditor the right to close the account or change terms. The credit card accountability Responsibility and Disclosure Act of 2009 (CARD Act) reduced penalty fees and made the cost of credit cards clearer to consumers.
However, some cards come with 0% introductory rates, but the fine print will specify when that rate expires and how much you’ll pay if you don’t have the initial balance paid off before that time. Always read the print to know how to redeem your card rewards. Credit cards are an excellent thing and a lot of people should try and get it and use it responsibly.
In conclusion, though there are Dangers that comes with credit cards, you can minimize these impact by doing some basic principles. When using any form of credit, it’s best to avoid complacency and maintain a good sense of discipline.