Paying too little or too late
One of the most common mistakes people make is simply paying their credit card bills too late. Paying credit card bills late can have serious negative effects on a person’s credit rating. After 30 days the credit card company not only charges late fees but also reports the late payment to credit reporting bureaus. Late payment history can stay on a credit report for 7 years, and credit payment history comprises 35 percent of a person’s credit score. In short, late payments lower credit scores.
Credit card companies are likely to increase the interest rates of cardholders who have a history of making late payments, as well. Other lenders will also increase interest rates and be less likely to extend credit to those with late payments noted on credit reports.
Merely making the minimum payments each month, even if made in a timely manner, can still cause people problems. Many credit cards have double-digit interest rates, so carrying a balance over a long period of time significantly extends the life and amount of a person’s debt.
Charging too much
Many people rely too heavily on their credit cards and charge up to their credit limits each month. Doing so can significantly damage a person’s credit score, however, even if they pay their bills on time. Creditors look at the amount of credit available to a person when deciding whether to lend. About 30 percent of a person’s credit score is based on how much of his or her available credit is in use at a given time. The more credit a person is using, the lower his or her credit score.
Carrying high balances also increases the likelihood that a person will not be able to pay off the full amount in a given month and will need to carry a balance forward into the next billing cycle – amassing interest charges along the way.
It is not uncommon for people to toss aside the pages of fine print that accompany new credit cards, not reading the details. In so doing, however, they miss important information about things such as how long the low introductory interest rate lasts, the higher interest rate for cash advances and fees for balance transfers. Not knowing this information can lead to costly mistakes.
Speak with an attorney
In many cases, people suffer financial setbacks, such as job loss or illness, and they turn to credit cards as a short-term solution to their situations. The credit card debt then spirals out of control because they have no way to dig themselves out of the holes they got into. People who are hopelessly mired in credit card debt may want to consider filing bankruptcy as a means of reorganizing their finances and making a fresh start. Bankruptcy can eliminate many unsecured debts, such as credit card debt, and allow people to start over. If you have questions about credit card debt relief options, speak with a skilled bankruptcy attorney who can advise you of the best way to proceed.