Common Credit Card Mistakes to AvoidThursday, January 07, 2010
Atlanta, GA. -- Credit cards are almost a necessity these days, but it is important to remember that the responsible use of credit cards has a significant impact on your credit score and your ability to get favorable rates when securing a loan for a home or automobile.
Consumer Credit Counseling Service (CCCS) of Greater Atlanta shares five common credit card mistakes consumers make.
Taking a new credit card and spending like they just won the lottery. Instead, save money for the item you want to buy, purchase it with a credit card and pay off the purchase when the bill arrives. "Credit cards provide a great opportunity for consumers to establish and build a solid credit history," said Lisa Ray, a financial education specialist with CCCS of Greater Atlanta. "Avoid accruing debt you can't afford to pay off quickly."
Charging items on a credit card that will be gone before you pay them off. Many consumers use credit cards for groceries, gasoline and other everyday expenses. If you are tracking your expenses and paying the balance in full each month, this can be a great way to build credit; but if you are carrying a balance and paying interest on your food and gas purchases, use cash for these items instead.
Paying off a credit card and then closing the account. One of the benefits of paying off a credit card is that you now have a better debt to available credit ratio, which is an important factor in calculating your credit score. Closing out the card eliminates that benefit. Consider keeping the card "active" by making a purchase every two or three months and paying it off.
Not factoring processing and mail time when paying bills. If you use your bank's online bill pay system or pay at your creditor's site, be sure to know how long it takes to process the payment. Many payments are not processed for 24-48 hours and paying online on your due date can actually result in a late payment. If you are mailing your payment, allow several days for the payment to arrive. "Many consumers don't realize that a late payment, even if it is just 1 or 2 days late, can be reflected as 30 days late if the creditor chooses to report you late to the credit bureau," said Ray. "According to FICO, a single late payment for a consumer with a credit score of 680 or better can reduce their credit score by 60-110 points."
Using credit cards as an emergency savings fund. An emergency can take you a lot longer to pay off and cost you two to three times as much when charged to a credit card. CCCS recommends that consumers have a minimum of $1,000 in an emergency fund and work toward savings funds that will pay for 3-6 months of living expenses in the event of a job loss.
If your credit balances are unmanageable, or if you are not sure how to get started, seek help-- Consumer Credit Counseling Service of Greater Atlanta has trained and certified credit counselors who offer budget and credit counseling confidentially - and for free. CCCS is a nonprofit, community-based organization and a member of the National Foundation for Credit Counseling (NFCC). For more information, call 800.251.2227 or visit us online at www.CredAbility.org or www.CredAbility.org/es.