Avoid Credit Problems by Using your Credit Card Wisely |
|
Millions of people see credit cards as a
convenience for making purchases and paying for them later. The problem is,
these cards can prove a burden when people use them beyond their income
limit. College students in particular are more at risk of the dangers of credit cards, since with credit cards they can defer payment on immediate major expenses of tuition and books. The main disadvantage of using credit cards is the mass accumulation of debt which proves impossible to pay back. For many students it doesn't take too long before they've accumulated huge debts as they often charge far beyond their monthly payments and are unable to pay back more than the minimum required. Students fail to understand that annual interest rates of over 18% means that most minimum payments they make, goes toward the interest on the debt. As hardly anything goes toward the debt itself, the balance continues to remain large for considerable time. Every time students find themselves unable to meet the minimum monthly payment, they damage their credit. Credit card companies make monthly reports of credit card payment status to credit bureaus. If there's a negative credit report of late payments or unpaid balances, your ability to get credit at good rates can be adversely affected. This means that it isn't necessary for you to file for bankruptcy to acquire a bad credit rating. In fact even having too many credit cards can have a negative impact on your credit rating. At the time of applying for an auto loan or a home mortgage, your credit report is reviewed by financial institutions on the basis of the number of credit cards you possess and the credit limit, which is the maximum credit amount that all your cards add up to. Even timely payments of credit card balances won't help as you are likely to use the cards for expenses beyond your ability to repay both cards and a new loan. It may also lead a banker to assume that your prompt payments indicate more concern to pay back credit cards rather than your auto loan. The likelihood of college students indulging in credit card misuse has even prompted the authorities at certain universities to ban on-campus solicitations. Certain tips may prove handy in minimizing the adverse effects of credit cards and when making a decision on which credit card you should choose. --Look for a card that comes without an annual fee. Credit card companies make money from the vendors every time you make a purchase on your card. Due to this there are many credit card issuers who don't charge an annual fee. --Keep away from credit cards with high limits like Gold Cards, Platinum Cards, etc. They may do your ego good, but high limits means greater chances of spending. --Keep a limit on the number of credit card applications you fill out. With every application you fill out, you are giving the credit card issuer the authority to inquire into your credit report. Each of these inquiries, also called hits, gets recorded. Thus your credit report has a record of every institution that has evaluated your credit history at any time. Your creditworthiness suffers damage with suspicion. This happens when a credit card company makes an inquiry about your creditworthiness and for any reason, does not issue you a card. Then it can prove most negative that an inquiry was made into your creditworthiness without a card being issued. Therefore it is not advisable to fill out just any credit card application for the sake of a free T-shirt or mug. Another mistake to avoid is to avail department stores and specialty stores that offer a discount if you open a charge account. The safest use of a credit card is to use it only when you are confident of paying off the balance at the end of the month. Follow these tips and suggestions to ensure that you make the most of your credit card without having to face any credit problems. |
