Dangers of Credit Cards

Credit cards are dangerous, especially for new credit card users who may be interested by what seems like “free” money. Some credit card users fall into credit card traps. If you’re thinking about getting a credit card, understanding the dangers that come along with credit cards can help you develop better credit card habits. Studies show that people tend to spend more when paying with credit cards compared to cash. A study showed people were willing to spend up to twice as much when using credit cards compared to using cash.

It’s easy to spend money with a credit card, and you don’t feel the cash leaving your wallet. You can avoid it by setting a spending limit with your credit card based on how much you can afford each month. Try not to overspend. Only 29% of people pay their full balance each month, according to the American Bankers Association’s June Credit Card Market Monitor. When you do not pay your balance in full, then part of each payment goes toward interest payments, which increases the amount of time it takes to pay off the balance. Adding credit cards to your spending methods makes it more difficult to keep track of your spending. Especially if you’re using credit cards, cash, and debit. A credit limit should not be thought of as free money to spend. If your card’s credit limit is $2,000, you should not plan to spend $2,000 that month, unless you can pay that much. Even if you can pay your full balance, your credit score will lower if you use a high percentage of your limit.

Your payment history is a big factor that contributes to your credit score, and missing payments can have a negative impact on your score. When you miss payments, you’ll typically be charged a late fee and a penalty may be applied to your account. Late payments may be reported to the major credit bureaus if it’s more than 30 days late. This could be on your credit for up to seven years. If you carry a balance over to the next month, you could end up paying a large quantity of interest. Credit card interest rates run high. When you apply for a credit card, a credit card issuer checks your credit report, and this check shows up on your credit report. This check can lower your credit score by a few points. You shouldn’t let this worry you if there’s a specific credit card you’re looking to get. But, you may want to avoid applying for credit cards you don’t need.