5 Credit Card Mistakes to Avoid in 2012

Nick’s Note:  Enjoy this guest post by Odysseas Papadimitriou, CEO of Card Hub, talking about five common credit card mistakes to avoid in 2012.  Let’s dig in!

We all make mistakes, there’s no, uh, mistaking it. But as the holiday season is a time for reflection and pledges to do better moving forward, we can surely try to cut down on the number of mistakes we make as well as the severity of those that inevitably do occur. This type of mindset can obviously apply to any aspect of life, but given the importance of sound money management, especially in the current economic environment, what say we explore five common credit card mistakes and how you can avoid them in 2012? This is a personal finance blog, after all.

1. Not considering history when opting-in

The new credit card law (CARD Act) requires that consumers opt-in for the ability to exceed their monthly credit limit. Before rushing to a decision either way, you should carefully consider your credit card usage history. (For those of you who already did, you can opt in or out at any time, so don’t worry). You see, the freedom to spend above your monthly credit allotment is worth having… as long as you don’t abuse the privilege. While over-limit fees are now far more reasonable than prior to the CARD Act taking effect – they’re now equal to the amount by which you go over the limit – they can certainly add up. So, if in the past you only went over limit for true emergencies, then I’d recommend proceeding with opting-in. If, however, you often went over limit for nonessential reasons, then I’d nip the temptation in the bud. As the saying goes, old habits die hard.

2. Getting blinded by rewards

Rewards are sexy, no doubt about it. They also aren’t for everybody. In fact, you should only focus on rewards credit cards if you have above-average credit and you pay your bill in full every month. Otherwise, fees and interest rates are more important for the following reasons: 1) The rewards available to people with average or below-average credit scores aren’t very lucrative, and since credit cards are the most efficient credit building tools, lowering the fixed cost of credit card use will be more beneficial in the long run; 2) Finance charges can negate rewards, so you might save more by concentrating on finding the right 0% credit card.

3. Going from balance transfer card to balance transfer card

People often ignore the length of the introductory terms offered by balance transfer credit cards because they assume that they can simply chase 0% rates from card to card. However, you shouldn’t count on being able to transfer a balance remaining at the end of a 0% introductory term in order to avoid high regular interest rates because who knows if balance transfer credit cards will even be around at that time? They weren’t during the Great Recession, and many people were saddled with suddenly-more-costly debt, which made widespread overleveraging issues that much worse.

4. Paying too much attention to commercials

The credit cards with TV ads and direct mail offers that show up at your house aren’t necessarily the best on the market, though their marketing can sure make them seem like it. You should, therefore, make sure to compare credit card offers online before submitting an application. Not only will this increase your chances of finding the best terms, but it’ll also help you avoid applying for cards that your credit standing does not qualify you for. That’s good because multiple credit card applications in a short period of time can hurt your credit score.

5. Being too caught up in “business”

The CARD Act improved consumer rights and transparency in the general-use credit card space, but business credit cards were left out of the new protections. That means a number of things but perhaps the most important is the fact that credit card companies cannot increase interest rates on existing debt held on a general-use credit card unless the cardholder is at least 60 days delinquent on payment. Rates for debt held on business credit cards can be raised at any time, for any reason. As a result, the best credit cards for small business expenses that will not be paid in full by the end of the month (i.e. business funding) aren’t business credit cards at all, but rather general-use credit cards. Small business credit cards are still useful, however, as they provide a number of unique features that allow you to track and manage company spending, set individual limits for employees’ cards, and earn rewards on all company purchases.

This article was written by Odysseas Papadimitriou, CEO of Card Hub, a leading online marketplace for discounted gift cards, prepaid cards, and the best credit card deals.

Until next time, put your credit card down and slowly step away from the mall!

Like what you see here? Tell your friends by sharing it with one of the buttons below. Post this to Facebook or Tweet it to help your friends and family, too. And don’t forget to send me an e-mail or comment to say hello. I love hearing from you.  

Also, please join our recently-started Facebook community where I hope to build a place where we can all share thoughts, successes and support. And don’t forget to follow me on twitter where you’ll find most of the posts, random thoughts by me and more. See you there!

Image: FreeDigitalPhotos.net