April 13, 2013

April 13, 2013

10 Common Credit Mistakes

Welcome to another day in my life. Today is Sunday and I hope you are having a beary safe and great weekend so far. It is another busy weekend for Dab the AIDS Bear and me.

Credit rating is so important to life here in the United States. Unless you have good credit, it is hard to buy a car or home, get a credit card and sometimes even find a job. But do you know the 10 most common credit mistakes?

Don't close old credit card accounts

So, you finally paid off that credit card bill that's been nagging you for ages. Your first inclination may be to say "Good riddance!", cut up the card and close the account. Not so fast. Closing the account can actually lower your credit score. First, you'll have a smaller amount of available credit and you'll be making your credit history with that card go away a lot sooner. Available credit and account history factor in your credit rating. Even if you pay off a credit card, you're usually better off keeping that card open.

Don't max out your cards before a bankruptcy

Most of us cringe at the idea of not making good on our financial responsibilities. But if you're contemplating bankruptcy, you may have been counseled to put certain charges or expenses on a credit card in the anticipation that you're going to soon wipe the debt out in bankruptcy court. But tread very, very carefully here. When creditors see that you've maxed out your cards or made big charges just prior to declaring bankruptcy, they may try to challenge your bankruptcy filing in court. And a bankruptcy judge may just reject your petition, leaving you on the hook for that credit card debt.

Don't apply for gas cards and department store cards

We all know that gas prices can eat into our budgets. But even if your wallet is taking a serious hit every time you fill up your tank, it's still wise to avoid applying for gas cards and buying fuel on credit. Ditto for applying for department store credit cards. Gas cards and retail store cards usually have very high interest rates far higher than national brand cards such as Visa or MasterCard. Plus, if you frequently apply for multiple credit cards, you'll generate inquiries on your credit report, lowering your credit score. To avoid these problems, only apply for credit when you truly need it.

Don't cosign for someone else's loans

It can be really hard to say "no" to an adult child or another loved one who is seeking a cosigner for a car loan, business loan or some other form of credit. But the truth is that cosigning for these folks is often a disaster in the making. You risk damaging your credit rating, being liable for that person's debt, and even worse: The relationship could be marred if the deal goes sour.

Don't share your credit card number

If someone calls, mails or emails you unsolicited and requests sensitive personal information such as your credit card number or your Social Security number, never divulge it, no matter how nice or legitimate the person sounds. Such requests are often financial scams targeting seniors. Criminals are trying to steal your money or make unauthorized use of your credit and good name. If you ever become the victim of identity theft, report it immediately to your local police department and to the Federal Trade Commission. You can reach the FTC toll-free at 877-ID-THEFT (877-438-4338) or at its website

Don't be pressured into accepting new credit cards

It may seem that every time you turn around, there's a new credit card offer in the mail or someone calling to pitch you one. That's not your imagination. Credit card companies send out billions of offers every year, but that doesn't mean you have to accept any of them or listen to the sales pitches. You can opt out of prescreened credit card offers and get off those pesky credit card telemarketing lists. You can also say good-bye to phone and email solicitations from mortgage companies. To opt out, visit the Consumer Credit Reporting Industry's official website.

Don't ignore the warning signs about credit problems

To help maintain a healthy credit rating, you should check your credit reports free of charge at least once a year at the government-mandated website. But a once-a-year checkup isn't enough. You should also routinely watch out for the warning signs that you may be in debt trouble. Some red flags include: being able to make only minimum payments, missing payments, charging without knowing how you will pay your bills, and constantly seeking zero percent card offers or low-rate balance transfers just to be able to afford your payments. If any of these warning signs sounds familiar, seek help from a trusted nonprofit credit-counseling agency.

Don't fall for credit repair schemes

If you've recently gone through a major personal setback such as divorce, bankruptcy or foreclosure, your credit might be shaky or even downright bad. But looking for a "quick fix" can put you in the hands of credit repair con artists who do nothing but charge high upfront fees or hidden costs for their "services." Beware of individuals or companies promising to "fix" your credit virtually overnight.

Don't pay your tax bill with a credit card

If you don't pay a federal tax debt, the IRS has the power to levy your assets, seize your tax refund or put a lien against your property. But none of that should scare you into paying with a credit card. That's because if you do, you'll also have to pay an "interchange" fee. This can run anywhere from about 2 percent to 4 percent of the amount you're paying. Now add that to the 12 percent to 18 percent interest you'll pay to your bank if you add the tax charge to your card's balance. A better solution is to work out a repayment plan with the IRS and pay your tax debt over time.

Don't put major expenses on credit just for "rewards."

People have been known to charge all kinds of things lavish vacations, cars, boats, diamond jewelry and more all to rack up miles, points and other rewards from their credit card companies. Unless you're 100 percent sure that you can immediately write a check for such charges and pay off your balance in full, making those large purchases on a card is a big no-no. Whatever benefit you get in terms of frequent-flier miles or hotel stays will be offset by interest charges you'll pay if you don't pay it off at the end of the month.

Hope these tips help you keep up that credit score.

Have a beary safe and great Sunday!

Until we meet again; here's wishing you health, hope, happiness and just enough.

big bear hug,

Daddy Dab