Health & Fitness
7 Deadly Credit Card Sins
Use Credit Cards? Most people these days need to use credit to purchase things they need and want. Review these 7 Deadly Sins and see what you can do to avoid these pitfalls.
Credit makes the world go ‘round. Isn’t that the old adage? Oh, it’s “Money makes the world go ‘round.” Silly me, I got them confused. How about you?
Does Credit mean you have money? Not really, it means you have the use of someone else’s money until you pay them for it. Usually at a higher interest rate than youshould. Credit Cards can be both an asset and a liability, depending on how you use them.
I really don’t believe in someone going to hell for committing any of these sins. But the ultimate result is the financial situation you will find yourself in afterwards. This certainly can cause some pain to your both your wallet, and damage your credit score.
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Below are Seven Deadly Credit Card Sins you should avoid:
Gluttony: Maxing Out
You have a $10,000 credit limit. Does that mean you can spend the $10,000 and max out your card? If you can’t pay off this balance in full, it will increase your ongoing debt and Credit Card Companies will charge you monthly interest on your unpaid balance. Plus maxing out credit limit will have a negative overall impact on your credit score.
Credit Bureaus will decrease your Scores based on how close you get to your credit limit. The higher your balance, the riskier your credit profile. Even if you pay on time, you will be penalized for the high balance. It’s called the “credit-to-debt utilization ratio” or how much your balance is compared to the credit limit.
It’s always best to use credit responsibly. Use under 30% of your total credit limits per Credit Card at any given time. To maintain the best and highest Credit Scores, pay on time and pay off all those balances in full by the end of the month whenever possible.
Pride: Pulling Your Credit
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Is your Credit Score accurate? Do you assume your credit file is correct based on you paying always on time? Not necessarily so… Credit Reports can have errors such as delinquencies (late payments) or wrong credit limits. Mis-information will definitely cost you points and lower your credit score.
You should check your credit report at least once a year. Under the Fair Credit Reporting Act, you are able to get a Free Copy of your 3 Credit Bureau Reports annually.
To avoid any issues before applying for a Mortgage, visit www.freecreditreport.com .This will not be the same Reports that your Mortgage Lender will pull, but it will give you a overview of what is on your Reports. Lenders have to pull their own Tri-Merge Reports that are scored to qualify you for the new Mortgage Loan.
Lust: I Want More, More, More!
These days, every credit card company and most retailers that have their own Credit Cards offer really great incentives to open a card with them.
These special offers are attractive, but that really doesn’t mean you should apply for every single credit card.
Having too many credit card inquiries in a short time frame will also negatively impact your credit score and make it go down. Only apply for credit as you need it. If you have a lot of cards now, start paying them off, it will definitely increase your scores. If you don’t have several cards, you can add a new card about once a year until you have three or four accounts that can easily be paid on time, or even better, paid off in full each month.
Greed: Taking Out a Cash Advance
Gotta have that thing!! Cash Advances may be necessary if you don’t have savings or reserve funds. But, this money comes with a hefty price. In fact, a huge amount of Interest up to 29.8% may be charged for this greedy little advance.
As always, it’s best to use credit cards where these “on-time pay” funds are used to make purchases and you can pay back the funds by the next bill’s due date.
Envy: Out of Your League
Keeping up with the Jones’ is expensive!
They may constantly show credit cards that allows access to private sports boxes, airport lounges, or earn free airfare miles and points. Don’t let jealously force you to sign up for one of these. Cards of this type normally have high Annual Fees that are only worth paying if you travel enough to justify these rewards.
Instead, ask yourself questions to figure out what type of credit card is more suitable to your lifestyle. There may be a great rewards card with no Annual Fee that will actually be better for you!
Wrath: Closing All Your Credit Cards
Burn Baby, Burn Baby, Burn….
Those who have gotten burned by their cards may be angry enough to cut up all credit cards in their purse or wallet and close all those Accounts. Simmer down, curb your anger and think about this first. Closing all your Accounts can negatively affect your credit-to-debt ratio, especially if the one card you’re leaving open – or transferring a balance to – is at its credit limit. Good Credit is earned and maintained in part with the length of time you have had the cards open and active.
It’s much better to keep these accounts open, but don’t use the credit. This will keep your credit-to-debt ratio positive and not decrease the average age of your credit report.
Sloth: Not Checking Your Monthly Credit Card Statements
Always balance your Statements monthly with your receipts. Auto-Pay is easy to set up and then forget all about your credit cards, especially when you use rarely use it but are still paying on them.
Many people have set their Utilities and other Expenses on Auto-Pay and forgot about what they did. Besides checking to make sure all transactions are legit you leave yourself open to possible fraudulent charges courtesy of “errors” or even worse, Identity Theft.
Want to own your own home, or currently own one you want to refinance?
These 7 Deadly Sins will directly affect whether you will be credit worthy to buy or refinance.
Steven Goldman
Waterstone Mortgage
763.746.9921 Office
