Credit cards are a convenient resource when you need to purchase something without having the money to do so.
However, there are some pertinent facts regarding credit card accounts that many consumers are simply not aware of.
Selecting the best credit card for your use requires some research and comparative shopping. Credit card companies offer a variety of credit limits, along with a variety of annual fees.
One card might offer you a credit limit of $300 with an annual fee of $59, resulting in an actual credit limit of only $241.
Another card might tempt you with a $700 credit limit; however, their annual fee is $175, leaving you with only $525 in credit. It is important to note that these fees are added to your account immediately upon your being approved for the card. Even if you never use the card, you are still responsible for the annual fee.
Some individuals sign up for a lot of credit cards simply for the prestige of having them. What they don’t realize is that doing this can actually be detrimental to their credit rating.
This is because the collective credit limit for all of the cards combined is regarded as potential debt. Even if these individuals never get close to reaching the limit on any of their cards, credit bureaus often base their ratings on the possibility alone. The chance that you will one day overextend yourself overrules the fact that you have not yet done so.
For example, suppose you have ten credit cards in your possession, with a combined credit limit of $8,000. You use the cards selectively, maintaining an ongoing balance of no more than $1,500 at any given time.
One day you apply for a loan or a mortgage, and your application is denied because your debt is greater than your income. This is because your potential debt is being considered, rather than your actual debt.
Ideally, the number of credit cards in your possession should be limited to two or three at the most. Pick out the most advantageous ones, and get rid of the others. There is one crucial thing to remember, however.
Simply cutting up the cards and throwing them away is not enough. You need to contact each credit card company and close the account.
If you do not take this step, credit bureaus will continue to include the credit limits for the cards you’ve destroyed as part of your potential debt.
Charging more than your credit limit on any given card can result in an over the limit fee being added to your account. The problem is, you may be exceeding your credit limit repeatedly without even realizing it.
Suppose you have a $600 credit limit on your MasterCard. You currently owe $500 on the card, leaving $100 available. You go shopping and spend $97.50, which seems fine because you’re still $2.50 under your limit.
What you’ve forgotten, however, is that by the time you receive your next statement, interest charges will have been added to the account for an amount exceeding the $2.50 that is available. Suddenly you are over your limit, and many credit card companies will automatically hit you with an over the limit fee in addition to the interest.
When used with care, credit cards can be a big help in times of need. The main thing is to familiarize yourself with each company’s terms and conditions so that you know what you’re getting into even before you sign that application.