Credit Card Strategies to be Aware of

Credit cards can be useful tools if they are used correctly.  If you are not careful you may find yourself in financial trouble quickly.  There are a few strategies to be aware of.  They can be beneficial if you use the credit card correctly, if not it may be costing you more than you were originally going to save.

Every time there is a inquiry from a credit card company or other creditor can have an affect on your credit score.  Your credit score can also be affected by the amount of credit you have available to you.  Even if you are not intending to use all of the cards you have, the credit reporting companies don’t know this.  Each time you apply for or open a new line of credit can be a ding to your credit score.

Transferring Balances from Card to Card

Many credit card companies offer zero interest or a reduced interest rate on balances transferred from another credit card to theirs for a certain amount of time.  This may save you a considerable amount of money if you currently have a high interest rate and if you are able to pay off the balance in the specified amount of time.  In many cases, if you don’t pay off the transferred amount in the specified amount of time the interest may be retroactive which means you all of the interest you would have paid on the unpaid balance will be added to the amount you currently owe.

Opening a Credit Card Just to get a sign on bonus

Some credit card companies offer a bonus such as extra reward points towards airline tickets, hotel rooms, etc.  You may need to charge a certain amount of purchases in a specified amount of time to receive the bonus rewards.  Companies are also raising the amount of reward points needed for free airline tickets and other benefits.  It is not recommend to alter you spending to reach these spending parameters to receive the bonus rewards.  In many cases, people spend more than they normally would to receive the reward points.  If you are unable to pay the balance in full within a month or two, the extra finance charges you pay may negate any value of the reward points and it may even end up costing you more than what the rewards are worth to you.

Beware of store credit cards

It is very likely you have been asked at many stores if you are interested in applying for a store card to save a percentage of your purchases.  One drawback of these cards is that the finance charges are usually higher than major credit cards.  Finance charges on store cards can be as high as 30% APF. 

As stated above each inquiry by creditors can affect your credit score.  If you cannot pay off the balance in full, the finance charges may minus out any of the original discount you received.

Credit cards can be helpful tools if used properly.  The above strategies are a few to keep that may seem harmless but can get you into financial difficulties quickly if not handled correctly.