Credit Card Mistakes – How Bad Are Yours? (Part 2 of 3)

October 30, 2009

Credit Basics

Credit Card mistakes and blunders are common.  Experts graded a range of credit card mistakes on a scale from 1 (losing a few bucks to a cash machine) to 10 (losing the house). Find out which worry the pros most — and which may (almost) get a free pass.

4) Missing a Payment
How bad is it? 9
The details:
Not only are you going to be slammed with fees, interest charges and other penalties when you miss a payment, but you’ll likely see a rise in your interest rates. If Credit Card  tips and debt consolidation tipsthat weren’t bad enough, you’ll also have to contend with a significant hit to your credit report — about 35 percent of your credit score is based on your ability to pay bills on time. As a result, you’ll pay more when you try to get a loan. “Missing a payment has both immediate and long-term consequences,” says Clarky Davis, Care One Debt Relief’s Debt Diva. “You may be dealing with the fallout for years.”

5) Having Too Many Cards
How bad is it? 6
The details:
If you’re the type to apply for a credit card just so you can grab a discount on clothes or other merchandise, you likely have a huge stack of cards in your purse or wallet. You’re probably not getting enough value from the card to make it worth the high interest rates or additional complications from additional bills and junk cluttering your mailbox — and you’re increasing the likelihood that a payment slips through the cracks or that you’ll be a victim of identity theft. “There’s rarely a good reason to get a new credit card if you’ve already got a general-purpose card, a rewards card and a low interest card,” says Cunningham.

6) Maxing Out a Card
How bad is it? 7
The details:
Maxing out a credit card can have a serious impact on your credit score, since about 30 percent of your score is based on “credit utilization” — the amount of credit Credit Card  tips and debt consolidation tipsyou’ve used relative to the amount you have available. More important, says Davis, is the fact that it likely signifies a distressing trend in your personal finances. “Maxing out a card may not have an immediate financial pull, but it’s a sign that you’re not budgeting or spending your money wisely,” she says. “It means you don’t have enough saved up to cover unexpected expenses.”

7) Playing the Balance Transfer Game
How bad is it? 5
The details:
Moving your debt from a high-interest card to a low-interest card with a balance transfer isn’t as smart a move as you think, says Francis. “About 15 percent of your credit score is affected by your recent credit applications,” she notes. Pile up a few transfers and your score will take a hit. “Credit bureaus don’t (differentiate) that these cards are for the same [debt], they just see it as you getting pre-approved for more and more credit.” Add in the fees that generally accompany balance transfers and you’re not gaming the system — you’re getting hammered by it.

by Erin Peterson

For credit card mistakes 8-10, please see tomorrow’s post…

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