Steer Clear of Credit Cards Many Hazards

Applying for credit these days is just too convenient.  You get applications in your mailbox, your inbox, every time you check out of a major chain or department store, when you're at a sporting event, and as college students know all too well, every time you walk through the commons there’s always someone looking to give you something free just for applying.  The downside is that it’s also all too convenient to misuse those cards, end up in some serious debt, and be left financially ruined because you didn't realize exactly how much credit cards affect your credit score.

Obviously the best way to avoid all of this is to have a plan in place before you even start applying for credit.  By no means is this and end-all list of tips, but it’s certainly a good place to start.

1.       Do not apply for too many cards.

The simple act of applying for any revolving credit will lower your credit score a few points at a time, whether you are approved or denied.  While superior credit profiles generally have about 3 lines of revolving credit, know you’re limit.  If you’re just starting out with credit, 3 cards are likely too many; one line of credit should be all that you’ll realistically need until you build your credit profile. 

2.       Understand the fine print.

As straightforward as it sounds, most consumers tend to forego reading every last line of the Terms of Service.  It may be tedious, but you are going to want to be familiar with the interest rates, late fees and other detailed particulars that are delineated in the fine print of your application.  In general if you’re finding out your fees after they’ve been assessed, you’re not going to be all to happy with the results.

3.      Do not max out your cards.

Lenders tend to see borrowers with maxed out balances as a huge risk.  Ideally, for the sake of building your credit profile, your balances should be around 20%-30%.  A lender that sees a consumer with several cards at their spending limits will think that you are only applying for a credit card or loan because you are desperately in need of the money. 

4.      Pay your bills on time.

It sounds like such a simple tip, but so many people don’t pay their credit card bills on time.  Just one late payment on one card is enough severely damage your credit scores for up to 2 years.  And it will remain on your credit reports for up to 7 years.  If you don’t think you’ll be able to pay it off, don’t borrow it. 

5.      Do not close out cards in good standing

Lenders like to see that you’ve been able to keep credit open over long periods of time.  You should really only switch cards if you have found a significantly lower interest rate, not because you get to personalize your logo on a new card.  The longer you have had credit in good standing the more stable you appear to lenders.

The recent economy has caused everyone to tighten their wallets.  This also includes banks & lenders that deal with credit cards.  The result is higher interest rates along with higher fees.  Getting into trouble with credit card debt can gravely harm your ability to get a loan for a car or a home.  If you manage to avoid these simple pitfalls of credit card usage, you’ll be thankful later when your credit profile solicits the approval of lenders.