Are you using the wrong credit cards? Chances are you’ve got the wrong kind of plastic in your wallet – and you may not even realize it.
Recently, two separate studies have revealed that millions of adults in America are unwittingly using the WRONG credit cards. It’s a mistake that’s costing them big bucks, and sometimes hurting their credit ratings too.Here are 5 hidden credit card catastrophes you should know; along with 5 tips you can use to avoid costly credit card mistakes.
Catastrophe #1: Carrying the wrong credit card
J.D. Power research shows that more than 20% of consumers carry and use the wrong credit card. For example, a lot of people pick a hotel or airline card for the travel perks. But these same people don’t fly often enough or stay in the same hotel enough to justify their card’s annual fee, which can be anywhere from $75 to $500.
The fix: When you pick a credit card for travel benefits, make sure the rewards offered match your true spending and usage. As a rule of thumb: if you don’t spend at least $500 a month on your card, or you haven’t used travel benefits in the past 12-18 months, you’ve likely got the wrong card. Switch to a card with no annual fee.
Catastrophe #2: Not shopping around for a better deal
Credit cards come in lots of different categories: Travel cards; student credit cards; balance transfer cards; cards with 0% deals; low interest rate cards, and more. Even if you have the right category of card, 30% to 50% of credit cardholders could save money by shopping around for the best deals currently available, J.D. Power found.
Most people don’t snag the best deals simply because they’ve had their current credit cards for so long, and banks often reserve their top offers for newcustomers.
The fix: Get online and comparison shop for the best credit card deals at a site like CreditSesame.com. Credit Sesame is an app that gives you a 100% free credit score, a credit diagnosis and an action plan to get you on your way to financial excellence.
Catastrophe #3: Accepting cards with low credit limits
The Federal Reserve Board did a 2016 study that showed that people with credit score below 660 points – those with so-called “subprime” credit – are the ones opening the most new credit cards accounts. Unfortunately, these people are also getting the least amount of credit. The average limit on their new cards is $1,000.
But people with scores between 720 and 779 are granted about $5,500 in credit, and those with scores over 780 receive an average of $8,000.
Having a card with a higher credit limit actually can actually boost your credit score. The key is to keep your debt on that card low. So don’t max out any card. In fact, try to only charge 25% or less of your credit limit. That’s harder to do if you only have a card with a $1,000 limit.
The fix: Work on your credit if necessary, and know your score before applying for a credit card. Again, CreditSesame.com can help, because they offer many free tools to better educate you about credit. Credit Sesame’s tools include: a free credit score; a free credit grade (A-F just like you got in school); and the best recommendations for which credit cards you’d most likely qualify for, based on your credit score.
Catastrophe #4: Saying “yes” to department store cards
During the holiday season especially, people have a tendency to say “yes” to all those offers for new credit cards from retailers. But each time you apply for one of these cards, it generates an inquiry on your credit report and that can drag your credit scores down. That’s especially true if you open a lot of cards while holiday shopping.
The fix: Just say “no” to offers to open department store cards. Not only do those retail credit cards charge higher interest rates, they’re not as good for your credit rating as national brand cards like Visa, MasterCard, Discover or American Express.
Catastrophe #5: Paying credit card bills late
Being 30 days or more late in paying your credit card bill is one of the single worst things you can do with a credit card. Late payments can also crush your credit score. A single late payment can lower your FICO credit score by 50 to 100 points or more!
The fix: Put your credit card payments on auto pay. Don’t charge more than you can afford. And if you get behind on bills, always call your creditors to try to work out a deal. Banks and other creditors may be flexible, and not ding your credit reports, if you address any financial issue head on, instead of ducking their calls or letters.