19th Nov 2015
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Common credit card mistakes
Common credit card mistakes

Credit cards are an essential part of the modern wallet or purse, not only for the convenience of credit, but also for the opportunity to improve your credit score. But there are pitfalls …

So, do you make any of these nine common credit card mistakes?

1.Know your credit score

It’s important to get familiar with your credit score, as it can save you from being rejected when applying for a loan or another credit card, as well as inspire you to improve your credit rating, should it be below par. To find out more about your credit rating, or to obtain a credit report, go to www.moneysmart.gov.au

2. Shop around

Consumers looking for a credit card that best suits them should first consider their credit rating, their lifestyle and how they spend money before applying. If you plan to carry a balance, then a low interest credit card would be ideal. If you’re a frequent flyer, then it may pay to go for a card with travel rewards. People applying for the wrong type of card can often be rejected or will have to cancel it down the track – both are situations that can have a negative effect on your credit rating.

3. Use your credit cards

Some people will have credit cards but not use them for fear of racking up debt that they may not be able to pay. By not using credit cards, you lose the opportunity to improve your credit rating, which may make borrowing for bigger purchases in the future a little more difficult.

4. Don’t collect credit cards

It goes without saying, although still important to mention, that having a whole lot of credit available to you and accessing it without carefully monitoring your spending, can often lead to crippling debt down the line. That’s why it’s best to only keep a couple of credit cards – a primary card for spending and one for back up and emergencies. It also pays to use the back up card once a month, then pay off the balance in full, to maintain a good credit rating.

5. Make timely payments

Missing the monthly due date may not seem like much of an issue, but each time you do so it damages your credit score. A well-planned budget should include credit card repayments and, if you’re likely to forget your regular monthly payment, then it may be best for you to set up a direct debit which pays at least the minimum payment or double the minimum monthly or, if you can afford it, the full balance each month.

6. Get rid of the balance

It’s not uncommon for people to think that just paying off the minimum amount each month helps their credit rating. But that’s not the case. Paying off the balance, instead of carrying it, should always be your priority if you truly wish to have a good credit score.

7. Don’t use your credit card for cash advances

Making cash withdrawals from your credit card account is always coupled with high interest rates that begin to accrue immediately upon withdrawal. So, if you want to make a cash withdrawal, it’s best to stick to your debit card or bank card.

8. Try not to cancel your cards

Some people are under the impression that, once they pay off a card that is no longer ‘useful’, it’s best to cancel it. But, once again, that’s not the case. It’s best to have a card that you use sparingly, rather than cancelling it altogether. Instead of cancelling what you feel is a useless card, stash it away somewhere and only pull it for a purchase out once every few months and, once again, pay the balance in full. That way you show that you can access the credit for purchase and that you are good for paying it off, building a good credit relationship with your provider.

9. Stay in the game

If you have a bad credit rating, or have suffered damage to your credit score, it’s easy to fall into the trap of thinking you can’t dig out of your debt hole. But when it comes to credit ratings, time heals all wounds. So, instead of cancelling your cards or, worse case scenario, declaring bankruptcy, talk to your provider and get some financial advice that can help you out of your debt dilemma. Banks often provide free credit consultations, or you could seek the advice of a trusted financial planner to see what is the most effective way to repair your credit.

Do you have any credit card advice for our members? Have you experienced any of these credit issues? What you do to remedy your situation?

Read more at www.realsimple.com

Worried about the overall state of your financies? Then why not read more about the 'Money habits you need to break'? 





    COMMENTS

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    Peterrj
    24th Nov 2015
    10:11am
    Credit Cards: get them before you retire. We are both retired and, notwithstanding we pay our Credit Card debit fully each month and have no debt, both my wife and myself have been refused to be issued a Credit Card by two banks because we can't prove we can pay back debt on to the Credit Card! Why? Because we have no taxable income!!! So get your Credit Cards while still in employment!!!
    MICK
    24th Nov 2015
    2:34pm
    Have experienced this once. Never been refused a loan or a card ever before that. The reason: low income because no longer in the workforce and the new credit legislation to protect idiots from themselves. The funny thing is that despite having significant assets, no debt, money in investments and in the bank it made no difference.
    The card provider: GE Money
    The card: 28 Degrees mastercard
    We wanted the card for travel which made the foreign exchange nightmare a bit easier and cheaper. We ended up getting a better product which works for us: the citibank visa debit. A gem!
    Anonymous
    24th Nov 2015
    3:56pm
    I've heard a couple of bad stories about GE Money regarding their high interest rates, enough to make the GE stand for Greedy Enterprise.
    Con
    24th Nov 2015
    10:51am
    Helpful advice Leon. Once again, I find your column practical and relevant for the issues that I face.
    Radish
    24th Nov 2015
    11:48am
    We have one joint credit card which is used to pay all purchases (apart from my fortnightly houskeeping money as I prefer to have cash in my purse). It is paid off in full every month and it is a great way of being able to tally up how much we spend each year.

    Also each of us have a personal credit card which we use on our own personal accounts. If either of us want to purchase something that is our own decision and it has nothing to do with the other person. I am a firm believer in both men and women having an account of their own and it works extremely well for us. Neither of us has to ask the other permission to spend money...which both myself and my husband would find demeaning.

    It may not work for others but it does for us.
    Golden Oldie
    24th Nov 2015
    12:13pm
    I have a credit card, but most times I use it as a debit card, instead of getting a bill at the end of the month.
    MICK
    24th Nov 2015
    2:38pm
    leon: my take on why people have problems with credit cards is that they mostly spend money they do not own and are unable to repay in full at the end of the month BEFORE interest is added on.
    I guess the real issue is the inability of people to control themselves and the discipline to save for what they want rather than using a high cost product like credit cards. You really can do little to stop human nature in many cases. People do what is bad for them and then complain about the consequences. Never changes.
    Suzie
    24th Nov 2015
    4:23pm
    I have a credit card which is used mainly to pay weekly payments on power, rates, insurances etc , and when these don't have to be paid I always put that amount in the credit card and you usually end up with a debit and this means no interest at all....I find for buying things online etc you are much wiser to get a debit card from the post office which you can add as much or as little on it when you want,no interest , no charges and best of all no name on the card just says Valued Customer .you can also get these cards if you intend to travel overseas and just put a bit away each pension day , that way you won't miss it
    Janran
    25th Nov 2015
    10:35am
    I never pay interest on my credit cards because I have them automatically paid in full from a savings account on the due date.
    Also, I refuse to pay by credit if there is a surcharge imposed (such as Aldi, Jetstar or my local Caltex service station).
    Old Dog
    28th Nov 2015
    10:31am
    It seems that most people posting comments pay their card(s) in full at the end of the billing cycle. Essential! Once upon a time I got caught by ignorance and poor management and did not do that. When my personal circumstances went bottom up, I found that I had to pay up and what a battle that was! Lesson learnt, I now have ONE credit card account with the bank that stuck by me when all was doom and gloom. I use it for pretty much every purchase and pay it when due. One word of warning - if you want to use a card to purchase lottery (or similar) tickets, DON'T use your credit card; the transaction is treated as a cash withdrawal and incurs interest immediately.
    Bow Maker
    30th Sep 2016
    11:01am
    I dont think the surcharge at Aldi matters much, its what you save against shopping at the other supermarkets who hit you with a lot more than a surcharge.
    Janran
    30th Sep 2016
    12:08pm
    My local (Richies) IGA is my first choice for fruit and veg now, along with a new greengrocer, who both source local produce when in season. They are not always cheaper than ALDI but they beat them with quality and freshness, without the excess bulk packaging, where you can't choose an individual fruit or vegetable. It's better for the farmers, too, who haven't been screwed to the wall by the Coles and Woolies giants.


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