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Credit cards are a great convenience, and it might be hard to imagine going to the mall or even the grocery store without one. But for many people, credit cards are a two-edged sword. If you don’t keep a tight rein on them, you can quickly find yourself in a situation where you’re paying exorbitant interest rates, or only paying the minimum balance each month.
Here are some tips for using your credit cards wisely.
The first thing to do is to get organized. This is a good time to obtain a copy of your credit report and make sure the information is accurate. Does the credit report list your current and past addresses accurately? Are there any loans or credit cards on your report that don’t belong to you? Have any of your creditors reported late or delinquent payments in error?
“If you find these types of mistakes, or any others, be sure to dispute them immediately,” advises Jennifer Leuer, communications manager for Experian Consumer Direct. She suggests checking the CreditMatters.com Web site, where you not only can order a credit report, but also can learn more about credit reports and scores -- including guidelines for disputing possible inaccuracies.
Next, review your credit cards and make a list containing important information about each card. Include the account number and contact information, especially the 800 number to call in case your card is ever lost or stolen. Make sure your ATM card is on the list as well.
Now that you’ve got a list of your credit cards, it’s time to evaluate them. Go back over your recent statements to double check your interest rates. “Many credit card companies entice you with low introductory offers that expire after a certain time period,” notes Leuer. “You may find out that instead of the 1.9 percent you thought you were paying in interest, your rate has gone up -- way up.”
Another hidden cost is the annual fee charged by some credit card companies. These fees can range from $25 up to several hundred dollars for gold or platinum cards. Take stock of the fees you’re paying. If you have a credit card that carries a hefty fee, you may need to shop around for a better deal.
As you take inventory, you may discover that you have cards you’re not using. If so, consider canceling them. Your credit rating is based in part on available credit and it could work to your disadvantage if lenders see that you have thousands of dollars of unused credit at your disposal. On the other hand, it’s a good idea to keep one or two cards that carry a zero balance, just in case.
If you aren’t in the habit of checking your monthly statement, you should vow to do that during the coming year. Hold on to your receipts throughout the month so you can reconcile charges when your bill arrives. “It’s important to read your bill every month to look for mistakes such as double billing, uncredited refunds for items you returned, charges that you didn’t authorize and other errors,” says Leuer. “If you find a mistake, contact your credit card company immediately.” (That list is coming in handy already!)
And remember to pay your credit card bills on time, since late payments can adversely affect your credit rating. Not to mention the fact that most credit card companies charge a hefty fee if you don’t pay on time. If you accidentally miss a payment, call and ask if the late fee and interest can be removed. Most cards will do this at least one time … if you ask.
If you find that you’ve accumulated more debt than you’d like, you need to come up with a plan to pay off your balance. Figure out a way to pay more than the minimum due each month. If you owe a credit card company $5,000 at 18 percent interest and you pay just the minimum every month, it will take you over 30 years to pay off the debt.
You’ll want to start by paying off the card with the highest interest rate first. And stop carrying your credit card with you at all times; it’s just too tempting. Reserve it (or them) for emergency use only. Save money any way you can -- by bringing your lunch to work instead of going out; having coffee at home instead of buying a latte every day; renting a video instead of taking the family to a movie theater. Even if it saves $20 a month, that is $20 more you can put toward becoming debt-free.
Make it a habit to review your credit cards and your credit report every January and you’ll be ready when it comes time to make a big purchase such as a house or a car.
ARTICLE POSTED JANUARY 22, 2003