Avoid Common Credit Card Pitfalls

For most people, credit cards are a common part of daily life. With one, two or more credit cards at their disposal, they're often treated like plastic cash. But the hard truth of the matter is that credit cards are an entirely different animal altogether. Credit cards should be used carefully and responsibly in order to avoid the very real possibility of loads of financial trouble down the road. Let's look at a few common pitfalls that often accompany frequent credit card use.

First things first: how many credit cards do you have? If you don't know the total number right off the top of your head, you likely have too many card accounts open in your name. People often think that the more credit cards they possess, the more buying power they have. They also assume that if the credit card companies are sending them offers they must have good credit. But, the truth is the more credit cards you have in your name, the more of a negative effect they can have on your credit report. Every credit account you have in your name is also considered as a liability on your credit report, because they're viewed as money that you could possibly owe. So, if you've been collecting credit cards from a number of department stores, you should seriously consider closing the ones you don't need as a way to keep your FICO score from being negatively affected.

Watch your spending habits. Many people really do get too comfortable with credit cards and treat them like cash. They purchase all sorts of frivolous things on their cards without thinking about how those numbers can add up – and add up quickly, to boot. Take a look: a $5 snack on Monday, a $7 dollar breakfast on Tuesday, a $4 gourmet coffee on Wednesday, an $8 dollar lunch on Thursday and a $13 movie ticket with popcorn on Friday aren't big charges separately. But, add them together and it comes to $37 a week, or $148 a month (not to mention the interest charges) on your credit card bill. What's worse, you don't even have anything to show for it.

Get to know the fees that are being added to your credit card accounts. This refers not to the charges you make with your card, but the charges that the credit card company levies on you. For instance, do you know hat interest rates you're being charged? If you don't pay off your credit cards in full each month, that interest will be tacked on to the amount you owe. You may also be subject to other charges as well (such as late-payment fees, which can even trigger a rise in your card's interest rate), so check your account regularly.

Get to know your grace period too, if your credit accounts offer them. A grace period is the time in which you're allowed to pay off your new charges under a same-as-cash policy (that is, interest-free), and can be as little as 15- or as long as 28 days. If at all possible, pay your cards within this period to avoid any additional interest charges.