Costly Mistakes Your Credit Card Company Wants You to Make
Credit card mistakes are extremely common, regardless of whether they are due to carelessness, financial problems, or confusion. While the fallout to the borrower can be costly, there are a variety of mistakes in which your credit card company won’t actually mind you make. By failing to use your credit card responsibly, your credit card company can actually profit from your mistakes. Identifying these potential problems can help you to avoid them in the future.
Making Only the Minimum Payment
Making only the minimum payment on your debt is a mistake that is typically not a concern to most credit cards. To help your credit, it is important that you are paying at least the minimum payment, but doing so is not likely to get your debt paid off. Your interest rate will likely cause your debt to grow, and in some cases your outstanding balance will continue to grow despite consistently paying the minimum required amount.
New rules established by the Credit CARD Act of 2009 make it easier for you to determine how long it will take you to pay off your credit card debt by simply making the minimum payment. For example, if you have a credit card with a 14% interest rate and a balance of $5,000, only making the minimum payment of $100 will take you over 20 years to pay off the debt. You will also pay over $6,000 in interest. By simply increasing your monthly payment to $150, your debt could be paid off in as little as four years, and the amount of interest you pay will be less than $1,400. Checking your credit score after you repay this debt you will also be more likely to see a positive credit history than you would if you simply paid the minimum required payment.
Missing a Payment
Another one of the major credit card mistakes you can make that your lender won’t mind is to miss a payment. This error can be extremely profitable if the borrower catches back up and eventually corrects their mistake. Interest is incurred during this time, and the card issuer is also likely to issue a late fee which is usually around $30. Some credit card companies will also increase the interest rate on the cardholder’s account, and this can make any future balances more expensive to the borrower and more profitable for the lender.
You should also note that missing a payment is quite different from defaulting on your payment or refusing to pay. This type of delinquency is known as non-default. Most major credit card companies note that 2-10% of their borrowers are situated in that stage of delinquency. By utilizing credit monitoring services, you can keep up-to-date with how this mistake is affecting your credits core.
Ignoring Your Monthly Billing Statement
Whether your monthly billing statement is sent to you via mail or you access it online, it is important to ensure that you view it. Mistakes can happen, so it is important that your review your monthly statement to make sure that no charges have been placed on it in error. If unfamiliar charges suddenly appear on your bill, this can be a sign of identity theft, so it is important to contact your lender right away to report any discrepancies.
Lenders don’t mind when borrowers neglect to read their statements. Reading through your bill can help you to understand how long you will need to pay off your debt. Credit card companies, who are in the business of making money off of the interest you pay on your outstanding balances, aren’t concerned if you miss this step. The numbers outlined on your bill could provide you with a wakeup call to increase the amount you are paying each month in order to get your debt paid off.
Certain credit card mistakes can be costly to you as the borrower, but they can result in a profit for the lending company. By identifying these mistakes, you can work to avoid them when using your credit card in the future.
