What Credit Card Companies Don't Want You To Know

You have been pre-approved! No limits! No interest!

You have probably been bombarded by mail from credit card companies. From what you can tell, they are prepared to give you what amounts to essentially free money. So what’s the catch? Here are some things that Credit Card Companies don’t want you to know.

You have probably been bombarded by mail from credit card companies. From what you can tell, they are prepared to give you what amounts to essentially free money. So what’s the catch? Here are some things that Credit Card Companies don’t want you to know.

1. Don’t sign up for cards you don’t need.

If the company has sent you unsolicited mail, don’t sign up for that credit card. You don’t need that credit card, which is why you didn’t seek out the credit card company.

Every time you sign up for a credit card it hurts your credit rating a bit. It doesn’t cause irreparable damage to your credit rating, but there is no point in damaging your credit rating even slightly for something that you do not need.

If you are at a convention or conference and they are offering signing bonuses, like t-shirts, think twice. Do you really want the t-shirt so badly that you would take on a huge financial responsibility?

2. Don’t just cut up your credit cards: cancel them.

When you have decided that you no longer want your credit card, be sure to call the company and have them de-activate your account. This ensures that you have paid your balance and that you no longer owe the credit card company money. This is especially important if you’re moving: if you move with a balance owing on your credit card, and the company is unable to find you, it could severely damage your credit rating, even if you owe as little as $10. So call your company to cancel your card. You will still need to cut up your credit card before you throw it away—and hey, that might be a source of satisfaction!

3. Keep a card for emergencies.

Many people claim that they need a credit card for emergency purposes. They sign up for a credit card and then immediately run themselves into debt. If your credit card is for emergency purposes, keep it for emergency purposes. The easiest way to make sure you don’t use your credit card for impulse spending is to put it on ice, literally. Put your emergency credit card in a sandwich bag full of water, and then put it in the freezer. This way you will have to let your card thaw before any purchases can be made. Often, by the time your card has thawed, you will have cooled towards the idea of any impulse purchase you were considering. Similarly, you might find yourself not even considering certain unnecessary purchases because you know your credit card is unavailable.

4. Store cards are still credit cards.

You might have been at a department store, or any retail store, and you get offered a new credit card. Often there are incentives, like savings on your current purchase and future discounts. Be aware that if you sign up for store credit cards it affects your credit rating, even though it might not seem like a credit card. This is not to say that points cards and consumer loyalty cards are credit cards, because those are different. However, store credit cards are credit cards (even if you do get extra loyalty points when you use them) and should be treated as such: this means cancelling cards you no longer use and signing up for cards judiciously.

Store credit cards (for gas stations, etc) often have much higher interest rate than regular credit cards. Retail cards sometimes have up to 10% higher interest rates, which makes them more expensive. Consider these expensive rates before you sign up for any “bargain” deals.

5. Treat your credit card like a debit card.

When you get a credit card, you are not getting any extra money. Any money that you spend on your credit card you will have to repay. Simply put, then, don’t spend money that you don’t have. Although it might be necessary to put the occasional purchase on your credit card for a few months, it is wiser not to spend money on your credit card that is not currently in your bank account. If you need to spend money that you do not have, consider taking out a personal loan, or getting overdraft protection on your account. Both of these options charge you much less interest than credit cards, and will save you money in the long term.

Why have a credit card at all, you ask? There are certain things that you need a credit card for, such as renting a car, or making online purchases. Credit cards are important to helping you create a good credit rating. Debit cards are wonderful tools but they cannot do all of these things. It is okay to have a credit card that you use wisely. Sometimes the easiest way to be wise about your credit card is to think of it like a debit card.

6. Monitor your spending.

Are you shocked and confused when your credit card bill rolls around at the end of the month? Taking the previous five hints into account should help you limit excessive spending on your card. Another way to help you limit your spending is to track how much you spend. Keep your receipts, and write down all of your purchases. Knowing where you are spending your money will help you manage that spending more efficiently.

Ask your bank or credit card company about what tools they have to keep you up-to-date. Often, you can use telephone banking, or online banking to check the balance on your credit card. If you are puzzled by the large amount on your bill each month, check the balance on your credit card each week to see if it matches the purchases you have written down.

6. Pay your card off in full.

(Or at least always pay more than the minimum balance.)

Credit card companies pretend they are being generous to you by allowing you to only pay $10 on your $200 balance. Unfortunately, credit card companies are not motivated by the goodness of a generous spirit: they want to make money off of you. The way they make money is by charging exorbitant interest rates (higher than most other loan interest rates). If you only paid the minimum amount of $10 on a $100 balance, it would take you years to pay off that relatively small loan.

Pay your balance in full to avoid any interest fees, and when you cannot pay in full, always pay more than the minimum balance to make sure that you are paying off the principle and not simply the interest.

Credit cards are useful financial tools. Like any tool, credit cards need to be effectively managed to have a positive effect in your life. Learning to use a credit card responsibly is an important aspect of developing financial common sense.

Morgan James is an editor of http://www.theguideto-loans.com.

The Guide to Loans (http://www.theguideto-loans.com/credit-cards.php) is an independent information site devoted to helping people understand how to effectively use their finances. The Guide to Loans provides the facts about finances so you can make informed decisions.

This site offers information on all types of credit personal loans, credit cards, mortgages, and much more financial information.