When it comes to credit cards it seems like banks and issuers are always pulling the wool over your eyes. You may think you’ve got everything under control but even the best among us can fall victim to tricks and tactics employed by issuers.
The good news is you can have your own arsenal of defense weapons in the form of simple tricks that take minimum effort, but can save you a ton. CBS MoneyWatch shares consumer education expert Virginia Sullivan’s advice to help you understand the traps and what you can do to protect yourself from them.
1. Use it, don’t lose it
If you’ve got multiple cards, but don’t use all of them, you might want to consider this: Issuers have gotten really aggressive over the past couple of years about closing down accounts or cutting down limits on a card that isn’t being used. If your oldest card, or one that gives you the most spending power, is being cut due to inactivity, it could spell disaster for your credit score.
That’s because FICO, the most ubiquitous credit score company, gives you points for having a long bill paying history. If you lose some of that history because your older card doesn’t show up on your credit report any longer, you could also lose your score. Additionally, if you have a low debt-to-available credit limit, you get points on your score. So if you lose a high-limit card, it can have a negative impact.
What to do: Simply switch over to (or stick with) using the cards that you don’t want to lose.
2. The minimum amount trap
If you’ve been told by a store that you can’t use your card on a transaction until your purchase equals a certain amount, you can thank recent credit regulations for that. Merchants pay a small fee to process your credit card swipe, and they are now allowed to set a minimum purchase amount of $10 or less. So if you’re buying a bottle of water, you might end up spending extra money on items you don’t even need to make up the minimum.
What to do: Avoid the hassle by carrying at least some cash in your wallet at all times.
3. The changing credit card trick
When is the last time you checked to see if the rewards, interest rates and fees on your credit card still match your needs? Even if you did an extensive search when shopping around initially, you may be surprised to find changes that make your card less attractive. Since Congress passed the Credit CARD Act, many issuers have made big changes that vary from higher interest rates and fees to revamping rewards programs.
What to do: Look up the rates and rewards on your card to see if they have changed. If they don’t match your needs any longer, it might be time to start shopping and comparing again.
4. Forgetful spells regretful.
We’ve all been there – we dutifully make our payments on time but once in a blue moon the due date slips our mind and before we know it, we’re hit with a penalty fee. Add to it the addition of new penalty rates and the cost of paying off your card goes up by the hundreds of dollars or more. That’s one pricey mistake to make.
What to do: If you are the forgetful type, set up automatic payments and you don’t need to worry about it.
5. Minimum payments are not your friends
This may be obvious advice, but it is an important one that’s worth repeating: Stay away from minimum payments. Paying the smallest amount required can add on huge amounts of interest – sometimes as much as your original debt.
What to do: Boost your regular payments by even a modest amount. You’ll save tons of money and pay off your debt quicker.