Don’t Make These Common Credit Card MistakesTuesday, December 06, 2011

CredAbility shares common credit card mistakes consumers make

Atlanta, GA — Credit cards are almost a necessity during the holiday season. If you purchase gifts online, book air travel or reserve a rental car, you will need to use a credit card. 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.

CredAbility 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 Mechel Glass, director of education for CredAbility. “Avoid accruing debt you can’t afford to pay off quickly.” Not sure you will hang on to the money to pay the bill? If you can, go online and pay the balance right after making the purchase or deduct the balance from your checking account so you don’t use it as available funds.

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 every day 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 Glass. “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. CredAbility recommends that consumers have a minimum of $1,000 in an emergency fund and work toward saving enough money to pay for 3-6 months of living expenses in the event of a job loss.

If your credit balances are unmanageable, or if you aren’t sure how to get started, seek help. CredAbility has trained and certified credit counselors who offer budget and credit counseling confidentially – and for free. CredAbility 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