Each shopping reason may look a bit different, but one thing will probably remain the same – you’re likely to get one or two pitches for a store credit card. You may get the pitch online instead of at the register. But the gist will be a deal for a credit card that’ll earn you rewards, points, or discounts.
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That sounds great, right? After all who wouldn’t want to save cash? But there are a few reasons why you should think twice before using your credit card.
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High-Interest Rates
Credit cards commonly have higher interest rates than other forms of borrowing, such as car loans and mortgages. These rates vary depending on credit score, card issuer, and the type of card.
For example, if you’ve a credit card with an annual percentage rate (APR) of 20% and you carry a balance of $1,000 without paying it off, you’ll accrue an extra $200 in interest over a year. To worsen things, you’ll need to pay interest on both the original balance and any accrued interest if you don’t pay it off quickly.
Check these guides on Amazon to learn how to deal with high-interest rates.
Security Concerns
When using a credit card, security is a big concern. The primary is credit card fraud. Internet scammers try to use different means to get your card information. Hacking into online databases, phishing scams, or installing skimming devices on ATMs or point-of-sale terminals are some of the ways fraudsters try to steal credit card information.
Once they get hold of your card information, they can make unauthorized purchases or engage in other financial activities in your name. Moreover, security is also a big concern when making online payments. Although many websites use secure protocols to encrypt data during transmission, there’s a risk of data breaches.
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Impact on Credit Score
Your credit score shows lenders your creditworthiness and it’s influenced by different factors, including credit card usage. When you use your card responsibly, you improve your credit score.
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Using your card responsibly involves keeping your balance low relative to your credit limit and making timely payments. On the other hand, carrying card balances or regularly missing payments, negatively affects your credit score. Here are guides on Amazon that can teach you how to improve your credit scores.
Fees and penalties
Credit card issuers usually impose fees and penalties, especially when cardholders don’t meet the card’s agreement. For example, if you don’t make the minimum payment by the due date, chances are you might incur some extra charges.
You may also face an over-limit fee if you exceed your credit limit. Some cards have annual fees and this fee varies depending on the card type and benefits it offers.
Additionally, credit card issuers often charge a fee when you transfer a balance from one card to another. It’s usually a percentage of the amount being transferred.
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Psychological Effect
You aren’t exactly draining anything in your account so you don’t have to pay anything at the time you’re buying something. This makes buying items with credit cards psychologically less painful.
In general, credit cards for purchases can make you feel detached from the physical act of spending cash. Unlike handing over cash physical cash, swiping cash can feel less “real” during the time of purchase. This makes it easier for you to overspend or make impulse purchases without thinking about its impact on your finances.
When you use a credit card, you’re taking out a loan that you’ll need to pay back. That’s why it’s essential to consider these five reasons before using your card. Check these books on Amazon to learn how to use credit cards responsibly.
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