Credit card basics: Five essential skills for mastering plastic
The latest issue of Consumer Reports (October 2008) has an article about the new credit card jungle. The faltering economy and the ongoing mortgage crisis may be affecting your credit cards; issuers are raising rates, changing terms, and lowering credit limits. The magazine notes: “Now is an essential time to do a credit-card checkup to make sure your accounts haven't changed for the worse.”
I like the idea of a credit-card checkup, but I don't think it's something you should do just once in a while. To avoid the dangers lurking in this credit card jungle, it's important to foster a set of survival skills that will help you avoid danger spots before you blindly stumble upon them. Here are a few:
- Learn to read the fine print. Read the legal stuff when you fill out the application, when you receive the card, and on any future mailings. Credit card terms and conditions can be confusing. This credit card glossary can help. If you don't understand something, ask for help.
- Similarly, review your statement every month. Due dates, fees, and interest rates are subject to change. Reconcile transactions and keep an eye out for fraud. Many people — and I'm one of them — actually check their statements online several times a month. By paying attention, you can prevent small annoyances from becoming large hassles.
- As always, don't be afraid to speak up. If you notice something strange on your bill, call customer service. If you want to dispute a charge, call customer service. If you want a rate reduction, call customer service. It never hurts to ask.
- Be wary of the special offers your credit card company sends you. Understand the teaser rates. Beware offers to skip a payment. Be suspicious of other products the company tries to push: insurance, fraud protection, etc. Many of these are bad deals for consumers.
- Finally, pay your bill on time and in full every month. If you are not yet in credit card debt, don't start. Don't rely on credit cards to support a lifestyle you cannot afford. Don't resort to using a credit card because you can't afford to pay cash for something — use a credit card because you can.
Remain vigilant against the scourge of credit card debt, the quicksand of personal finance. Credit cards are not a source of free money — don't treat them as such. Credit cards are tools that allow you to use the money you already have in different, more efficient ways.
For example, I save 1% on my utilities by paying with my cash-back credit card. These are expenditures I'd make anyhow, but the card saves me money. (As a bonus, using the credit card helps with my quest for a paperless personal finance system.)
For more on this subject, check out these past Get Rich Slowly articles:
- Why I applied for a credit card (and why it's not the end of the world)
- How those evil credit cards can be good for you
- A credit card is not an emergency fund
- Life without credit cards
What do you consider essential credit card skills? What sort of credit card basics do you think people should know?