Credit cards are convenient – and many offer rewards on purchases. But if you don't use credit responsibly, you can quickly rack up debt and decimate your credit score in the process. Here's a look at eight potential pitfalls to avoid.
1. Falling for marketing hype. When choosing a credit card, it's easy to get excited about a sign-up bonus or a card that contains the logo for your favorite sports team without thinking about how the credit card actually fits your spending habits. Is it accepted at the retailers you frequent? Does it have an annual fee? What's the APR? These details aren't as exciting as snazzy bonuses or logos, but they're crucial to consider.
If you've had credit issues in the past, a pre-approval offer might be tempting. But Curtis Arnold, founder of cardratings.com and author of "How You Can Profit from Credit Cards," says those pre-approvals are often a marketing gimmick. You might meet some kind of criteria set by the card issuer, but pre-approval offers are not a guarantee you'll actually qualify for the card or that it's the right card for you. Think about how you plan to use the credit card (Travel? Everyday expenses? Emergencies only?) and research your options to find the card that best fits your needs.
2. Skipping the fine print. Ignoring the fine print before or after you apply for a credit card can get you into trouble. "Too often, people skip the fine print and don't understand the fees that are involved," says Beverly Harzog, credit card expert and author of the forthcoming book "Confessions of a Credit Junkie: Everything You Need to Know to Avoid the Mistakes I Made."
Don't assume that the 2009 Credit CARD Act – which outlawed certain credit card fees and required issuers to give consumers greater transparency around other fees – will protect you from any and all credit card fees. "People could get a false sense of security knowing there's a new credit card law," Arnold says. "The laws don't protect us from everything. Our best protection is ourselves."
3. Making only the minimum payment. Just because you can afford the minimum payment doesn't mean you can afford all your credit card purchases. "Credit card companies are some of the best marketing people around … when you get your bill, the first number on your bill is the minimum payment," says Bill Hardekopf, CEO of lowcards.com, a free consumer resource on credit cards.
Say your minimum payment is $42, but your total balance is $1,200. "A lot of people think, 'I paid the $42 so I'm good on my credit card,'" Hardekopf says. "No, you're not. Your balance is still well over $1,000 and getting charged this extremely high APR." If your interest rate was 18 percent and you made only the minimum payment of $42 on a $1,200 balance, you would wind up paying $713.79 in interest and spend 89 months digging yourself out of debt. Carrying a balance on a rewards credit card typically means even higher interest rates than regular credit cards.
4. Taking a cash advance. Cash advances and other cash-like transactions can start running up interest from the date of the transaction. Often, these may be subject to different interest rates than regular purchases. "There's a temptation to use a credit card in an ATM machine or use those horribly obnoxious convenience checks," Hardekopf says. Both can have extra fees attached, so avoid them if you can.
5. Ignoring statements and other mail. According to data from BillGuard, "grey charges" – charges that are technically legal but aren't always authorized – cost credit and debit cardholders more than $14 billion last year. These charges can include payments for a gym membership you thought you canceled or ringtones you didn't know your cellphone carrier had tacked onto your bill. Review your credit card statements regularly to avoid these extra charges, and try to resolve the issue with the retailer or, if that doesn't work, dispute the charges. "You need to go over your credit card statements with a fine-toothed comb to make sure that nothing's fraudulent and there's nothing you're unaware of," Hardekopf says.