1 - Never Carry a Credit Card Balance
The first and most important rule is to never carry a balance. Pay off your balance, full every month.
A lesson on How Credit Cards Balance Works:
Balance – When you carry a balance, the credit card company charges interest on top of your initial purchase.
Interest Rate – Interest rates for Credit Card companies range from 14% to 30%. This means if you buy something that costs $100 and don’t pay it off in full before the due date, it will cost you an extra $14 to $30.
Roll Forward – You roll this balance month to month, the $500 flat screen television you bought at black Friday special for a great deal, could end up costing you a $1,000, when you add up all the accrued interest – not such a great deal anymore.
I remember my first week of college at the University of California, Irvine. I was walking through the campus student center so excited to finally call myself an adult and a college student – when a booth that was giving away free t-shirts caught my eye!
And they said all I had to do was just fill out some form to get a credit card that would proudly display my university mascot – the anteaters. No brainer of course!
Few months later, after having paid only the minimum payments, I was straddle with a thousand dollars of credit card debt and learned the harsh lesson of accrued interest.
Avoid Credit Card interest rates by paying your balance in full every month!
Credit card companies love it when people fail to pay off their entire credit card bill at the end of each billing cycle. They make huge amounts of money, when the user fails to pay off their entire credit card bill.
This is one way Credit cards can become super expensive! They can be great tools, but if not used correctly, they can end up costing you a fortune.
2 - Always Pay on Time
Never be late with your credit card payment.
The Credit card companies are in business to make money and they love it when people don’t pay on time.
Not only will you waste money from the accrued interest and additional late charge fees, you’ll also damage your credit report.
Credit scoring systems take late credit card payments into consideration when determining your score. This can make it more difficult for you to get approved for loans or securing the lowest interest rates, because any blemishes on your record are associated with a higher risk of defaulting.
Friends don’t let friends miss their credit card payment.
If you can’t afford to pay the balance in full, at least pay the minimum payment.
The easiest way to avoid this ridiculous error is to set up automatic payment. All credit card companies allow you to do this on their website and you never have to worry about forgetting a due date.
If for some reason you accidentally missed a payment, give the credit card company a call. They are usually lenient with first timers and you can get your fee waived as well as avoiding damages your credit report.
3 - Never Use Credit Card Cash Advance
As I mentioned earlier, Credit Card companies are in the business of making money.
So they will come up with all sorts of tricks to get you to use their credit cards as often as possible.
One of them is Cash Advance – using a credit card like an ATM, so you can have access to cash.
This ranks up there as one of the biggest credit card sins.
Cash advances aren’t subject to the same terms as traditional credit cards, so they come with a very expensive price tag.
High Interest Rate: Cash advances comes with Super high interest rates. Much higher than the regular interest rate on the credit card. For example, Credit Card companies can charge anywhere from 20% – 30%. In my mind, it’s a criminal to charge that much in interest rate.
Fees: Cash advance comes with additional fees. There are cash advance fees and ATM Fees which you will have to pay on top of the interest. This can range up to $20 or a percentage of amount you withdraw.
Immediate Accrual: And they will start charging interest rate on the amount you pulled, the moment you get the cash
So when it comes to cash advance, just don’t do it.
It could sound like a good idea when you are in a pinch, but trust me when I say – its not.
Credit Card cash advances can be a quick way to dig yourself deeper into debt, and end up costing you hundreds, if not thousands of dollars very quickly.
4 - Evaluate Rewards Carefully
To be fully transparent, I am a big fan of credit card travel rewards.
By responsibly using travel reward credit cards, I was able to take my family to places like Hawaii and Asia for the fraction of the cost.
However, I’ve also seen people who’ve gotten carried away with all these rewards credit card and paid a hefty price.
Whatever “free stuff” you are offered, they are not a good deal if you are paying extra to receive them.
If you are someone who pays off their credit card in full each month, then Credit Card Rewards can be a great way to get free stuff.
However, if you do carry a balance from time to time or struggle to stay on top of your credit card bills – you want to stay away from being enticed into rewards Credit Card.
Annual Fee: If you have a card with an annual fee, make sure you evaluate its worth carefully. For example, I once had Credit Card with a $450 annual fee and it came with an airline credit of $300. So in my case, the Credit card was worth the annual fee since I traveled frequently for work. However if you are someone who doesn’t spend a lot on airfare – then this type of Credit Card might not be worth it.
Benefits: If you have a credit card with perks like purchase protection, rental insurance or access to airport lounges, make sure to use them! What’s the point of having these cards, if you don’t take full advantage of its benefits. You are already paying the annual fee, make sure you read all the fine prints to maximize the value you are getting from each card.
5 - Monitor Credit Report Regularly
Credit cards are vulnerable to fraudulent transactions. We always have a few in our wallet and use it for most of our transactions. As such, it is very important that you monitor your credit report.
The Fair Credit Reporting Act entitles everyone to one free credit report a year through their website, however there are free services that let you check your credit report more frequently.
Credit Karma is one such service that I use to monitor my Credit Report. You have to create account to use their services, but it is a great way to regularly monitor your credit report.
You can have the service send you email alerts, if there are new credit inquiries against your account.
As a good habit, put a reminder on your calendar to check your credit report at least once a month, to keep an eye out on any unauthorized transactions or fraudulent activities.
Another good habit is to use a consolidated view of accounts through online software like Personal Capital or Mint, so you can monitor all your charges from one portal. This saves me a-lot of time from having to log into multiple accounts given I have more than one credit card.
Credit Card companies are required by law to report credit data on your Credit Report within 30 days, but it can take longer for other lenders like mortgage providers or car dealerships. So make sure you check your Credit regularly, so you can catch any potential fraudulent charges