Some folks love them. Some folks hate them. Either way, credit cards have become an almost universal financial fact of modern living in America.
Having one is probably a good idea, says Christopher Viale, board chairman of the Association of Independent Consumer Credit Counseling Agencies. They’re important in building a good credit score and many card holders judiciously cash in on the related perks – rewards programs, points, cash back or miles, to make their money go farther.
However, Viale says, there may be a downside to using your credit card as first choice in making payments. They constitute a serious temptation to overspend, which could result in excessive debt and damage to your credit score.
Experts list these warning signs that your credit is controlling you instead of the other way round:
No. 1: Pay your credit card bill on time each month. Missing payments can create chaos. Your VantageScore could drop 70 to 90 points for the first instance of missed payment. If you are able to make only minimum payments and are struggling to do that, take it as a warning sign. Stop using the card and pay with cash. Make a plan for getting the card back on an even keel. If you have multiple cards, concentrate on the one with the highest interest, while continuing to make minimum payments on the other cards. Resist the temptation to spend just to benefit from special offers or discounts from retailers. What you stand to lose is more than what you stand to gain. At least once a year, write down your expenditures and scrutinize them. If an honest analysis shows you are overspending, adjust.
No. 2: If you are using a card that carries interest rates of 18 to 20 percent, consider that a red flag. It’s important to your credit scores and competitive loans to show some smart spending habits. Cards with lower interest rates are available. If you apply for a card with lower interest and are turned down, you can be assured your credit use is out of balance and needs attention. Brand loyalty at this point is counter productive. Don’t stick with a card that doesn’t offer you the rates and rewards you deserve. Too many inquiries into credit card offerings can hurt your credit score. Don’t apply for a new card until you’ve done your homework. Closing a credit card account also can have negative connotations, so consider if it is worth keeping your current card as part of your overall assessment.
No. 3: If you have been beguiled by the lure of attractive sign-on bonuses and lucrative rewards offerings and now have a wallet full of cards, it’s time to assess and start trimming. The more credit you have in your pocket, the more likely you are to overspend. And you may find yourself confused about which payments you have made and when. Not worth the prospect of missing a payment. Viale suggests two cards that have good rewards points.
No. 4: Luxury credit cards are designed to attract attention. Flashy colors and materials heavier than plastic seem (only seem) to lend some extra legitimacy to your card. Beware such ego strokes. If you see them as status symbols, take a closer look. Luxury cards may carry high annual fees. They may have very high or even unlimited credit limits, a clear invitation to overspend, a disaster for average card holders. Be certain your credit limit is manageable. If you have one of these “status cards” in your array, consider closing it out. Look for a more reasonable card in the same issuer’s selection. Closing out a card entirely could affect your credit score, but there are times when that is the best thing to do. A temporary dip in the score is preferable to keeping a high-fee card that tempts you to overspend.
