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Credit cards can be very attractive, with welcome offers luring you in with the promise of thousands of points that you can redeem for travel or cash back rewards. But credit cards can also be useful financial tools. They can provide you with convenience, security, and help you build credit while earning rewards like points, miles, and cash back that can help you save money.
But intertwined with all the perks, perks, and bonuses are surprises that can catch you off guard and potentially hurt your finances. Irresponsible use of the credit card and misunderstanding your card’s terms and conditions can outweigh any benefits.
“There is a saying in the industry that credit cards are like power tools – they can be very useful, but in the wrong hands they can be very dangerous,” says Ted Rossman, senior credit card industry analyst. credit cards at Bankrate.
Here are six credit card surprises to keep on your radar.
1. Lucrative registration offers have a deadline
The promises of tens of thousands of points or miles just for opening a new credit card account seem simple, but there is more to the story. “Credit card signup bonuses can be extremely lucrative, but be sure to check the fine print,” Rossman cautions.
Typically, you have to spend thousands of dollars in the first few months after opening your account in order to earn the promoted bonus.
“The key is to maximize the money you would have spent anyway,” says Rossman. For example, if you are planning to buy new kitchen appliances, new furniture, or book an expensive vacation, now might be a good time to open a new card with a generous welcome offer.
“You don’t want to overspend, but you also don’t want to miss the bonus threshold and lose those potential points or miles,” Rossman continues. Keep track of the spending threshold and deadline. If you do not meet the spending requirement, you will not receive the bonus. Another caveat Rossman points out: If you return an item, that expense probably won’t count.
2. Cash advances do not include a grace period
You may be very familiar with your credit card grace period, which can be up to two months from the time you make a purchase to the due date on your account statement.
You might not know that cash advances don’t have a grace period and interest starts accruing immediately.
“Credit card cash advances are almost always a bad idea because the interest rate tends to be higher than on regular purchases (often something like 25% instead of 16%), interest starts to rise. run immediately and there’s usually a segregated fund advance fee as well, usually 5% of the amount you withdraw, ”says Rossman.
Beyond the high interest and fees, you might not even realize you’re taking out a cash advance. For example, if you use your credit card for ATM withdrawals, gambling purchases, deposits, wire transfers, traveller’s checks, and money orders, there’s a good chance this will count as a cash advance, says Rossman.
Plus, Rossman says you might not realize that the convenience checks that issuers sometimes send out are often treated as cash advances. “So you might think you’re doing something smart by paying your rent with a payday check, but it could really cost you cash advance fees and interest,” he says.
3. You are responsible for anyone you authorize on your account
You may have added your kids, loved one, or even a business partner to your credit card account as an authorized user, but doing so can have serious consequences. While they may promise to reimburse you for any purchases they make on your account, the reality is that you and you alone are responsible for their purchases on your account.
“If you add someone to your credit card account as an authorized user, you are legally responsible for paying for those transactions – not for them,” says Rossman. “This is your account.”
The best way to protect your wallet and your credit score is to be extra careful about who you add, and Rossman recommends taking people out when that’s no longer appropriate.
“For example, you probably don’t want your ex-husband, ex-girlfriend, or ex-partner always on your credit card as an authorized user,” Rossman jokes. “And while it might make sense to have your kids as Authorized Users for a while, at some point you’ll probably want to cut that tie.”
4. Don’t assume you get all the benefits of your card
5. You can earn more rewards when you bank with the card issuer
There may be opportunities to earn a higher earning rate on your rewards credit card account when you have a bank account with your credit card issuer. Consider Bank of America’s Preferred Rewards program, which is an example of how loyalty can pay off.
If you have at least $ 20,000 in qualifying deposits or investments with Bank of America / Merrill Lynch, your Bank of America credit card rewards will be worth 25% more, says Rossman. If you have $ 50,000 in qualifying deposits or investments, your rewards bonus is 50% higher. And for the highest income level, with $ 100,000 or more in qualifying deposits or investments, your rewards will be worth an additional 75%, he says.
“This is one case where centralizing your accounts and demonstrating loyalty may be worth it,” adds Rossman. “Take, for example, the Bank of America® Unlimited Cash Rewards credit card. Its standard repayment rate of 1.5% is quite mediocre. But if you get the 75% bonus, then it’s 2.625%, which puts it among the very top competitors. “
6. Not using your credit card can impact your credit score
Credit cards affect your credit score in several ways. “From the credit card application itself to whether you have a balance, pay it on time and what part of the credit limit you are using,” says Rod Griffin, senior director of education at audience and advocacy for Experian. But what may surprise you is the impact of inactivity on credit cards on your credit score.
In order for your credit cards to be reflected in your credit score, you must show regular account activity. If you don’t use a card for several months, you might see an unexpected negative impact on your credit scores, Griffin explains.
“Long periods of inactivity are an often overlooked or unknown threat to your credit scores,” he says. Credit scores not only require that an account be present in a credit report, but Griffin explains that there must be consistent activity in that account for it to be reflected in your score.
“If you put a card aside and don’t use it, it ultimately won’t count and your score could drop as a result,” he says. To make sure an account improves your credit score, make a small purchase each month and pay it off in full by the due date. This action will increase your score.
If you have an inactive credit card, there’s a good chance the issuer will close the account if it hasn’t been used for a while. “When that happens, it reduces the amount of credit you have,” says Griffin. “This can have a negative impact on your credit score because it will likely increase your credit utilization rate, which is the second most important factor in credit scores.”
Bank of America® Unlimited Cash Rewards card information was independently collected by Select and was not reviewed or provided by the card issuer prior to posting.
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