Credit cards are widely accepted and offer a convenient purchase method. Having a credit card that you pay off timely, helps build your credit history, which is important for future purchases of a home or car. In addition, they provide a funding source in an emergency, when cash is not available. However, while credit cards offer several benefits, they can become very costly if not managed appropriately.
Credit card companies can assess late payment fees, annual use fees, increase your interest rate if you miss a payment, charge transaction fees on cash advances, and use a variable interest rate that can increase without notice. Allowing your credit card purchasing to get out of control could have a negative impact on your credit history. Here are some of the actions that will hurt your credit score:
- Missing payments (just one late payment could have a negative impact)
- Maxing out credit cards to their capacity
- Obtaining multiple accounts in a short period of time
- Having more revolving loans (e.g., credit cards) versus installment loans (e.g., home mortgages, car loans)
Look for a card that best fits your needs. There are several types to choose from:
- Credit Building Cards – These cards are meant for individuals with limited credit history. They usually requiring you to make a deposit to secure the credit limit, which the bank holds in case you fall behind in making your payments.
- Low/No Interest Cards – These cards offer low interest for individuals with good credit. However, be careful as many offer low rates as a promotional offer the last for a limit time. Make sure to read the fine print.
- Rewards Cards – These cards offer rewards such as cash back, points, miles on your purchases. However, they usual are offered with a higher interest rate and should only be used if you pay off the balance in full each month. Make sure to read the fine print on how to earn rewards and when they expire.