At some point in your life, you’re most likely going to open a credit card account. And that one card might eventually lead to several others. While you sign up for these cards with the best intentions of never racking up debt, you may find yourself stuck with a pile of bills you can’t manage and endless calls from creditors. The good news is you don’t have to end up in a debt catastrophe. Here are six ways to avoid common credit pitfalls and stay on top of your finances:
Don’t Give Into That High Limit
So you were just approved for a credit card with a $10,000 limit. Great! Now proceed with caution and don’t let that excitement fool you into maxing out your card on the latest tech gadgets or a closet full of new clothes. Chances are you may not have the cash to make a significant payment or the full $10,000 to pay it off. Not to mention your card may have also come with a super high interest rate that will set you further down the path of incurring a large debt. The best rule of thumb is to manage your budget accordingly and keep your balance low by charging only what you can afford.
Make Your Payments…On Time
Always be sure to make your payments by or even before their due dates. One of the fastest and easiest ways to hurt your credit score is by not paying on time or continually missing payments altogether. Your payment history is one of the biggest components that makes up your credit score. One of the best ways to be sure you always pay on time is to set yourself up for automatic payments. Establishing good payment habits will help you build up a positive history that won’t negatively impact other credit decisions down the road.
Watch Out for Fees
The list of fees and other terms are part of the fine print in your credit card agreement. If you haven’t reviewed them or aren’t careful, they can surprise you and add up quickly. You might end up paying annual fees, late payment fees, returned payment fees, cash advance fees, balance transfer fees, overbalance fees, foreign transaction fees and others. When you are looking for a card, try to find one without an annual fee. The rest of the fees can be avoided by following the rules.
Don’t Apply for Too Many Cards at Once
Each time you apply for a new card, the issuing company runs a check on your credit. These inquiries can temporarily lower your credit score by just a few points. Too many card applications and your credit score plummets even further. Be selective about applying for credit. Also, try to avoid applying for cards where approvals aren’t likely.
Build an Emergency Fund Whether your car breaks down or you have to pay an out-of-pocket medical expense, any emergency situation can cause you to quickly max out your credit card. Establishing good saving habits can help you avoid sending yourself into debt. Create a monthly savings goal and automatically set up recurring transfers from your direct deposit. Try to increase your goal as much as possible until you have enough to cover three to six months of expenses.
Have Credit to Build Credit
As illogical as it may seem, you actually need to establish credit to build good credit. Of course, this doesn’t mean you can go wild with a bunch of purchases. It just means you need to keep your account open and in good standing by maintaining a low balance and making sure you make your payments on time. If you don’t have any credit history that shows you’re solid when it comes to payment management, it will be hard to get approved when you need a loan for a car or home.
A Word of Caution
The fact is that having a credit card means that you’re at risk of going into varying ranges of debt, which can be stressful and difficult to get under control. To avoid this struggle or get out of debt, follow the few simple guidelines above.
To get help with building your credit or getting high balances under control, give us a call at (210) 210-223-6561.