Honest money mistakes can happen even to those committed to managing finances, but the key to righting your financial errors with a credit card is not letting one slipup cost you any more than it must.
Here are four common financial errors that can happen with credit cards, and how to recover from them:
1. Missed credit card payment
Recovering from a missed credit card payment hinges on your proactivity, and sense of urgency. Though a credit card issuer can charge a fee for the missed payment (which usually ranges between $20 and $35), policies and amounts vary.
Contact your credit card company immediately to make a missed payment as soon as you realize your financial error, and ask a call center manager about the potential for waiving your late fee. Contact your credit card company immediately to make the payment as soon as you realize your financial error, and ask a call center manager about the potential for waiving your late fee — which they often will do for good, longstanding customers.
From a credit score standpoint, timing is everything: Nothing derogatory happens to your credit score until your late payments cross the 30-plus days past due threshold, which is why time is of the essence if this is among your financial errors.
For the future, establish automatic payments to cover at least the minimum payment due, so you’re covered in the event that you miss a payment due date again. Additionally, consider adjusting the due dates on your credit account to coincide with a date that you know you’ll remember, like your birthday, or payday.
2. Overdrafting your account
A new study by Moebs Services shows that overdraft fees have made a major comeback, accounting for $22 billion in financial institutions’ fee revenue in 2012.
Though most overdraft fees occur out of either customer error or lacking the funds needed between paychecks, you can ensure that you limit, and potentially eliminate, overdraft fees and avoid this financial error.
Contact your financial institution to understand the overdraft protection options offered — and what you currently have. (Under the CARD Act of 2010, customers must “opt-in” to an overdraft service offered by a bank, with the exception of overdraft protections to cover automatic payments, or monthly mortgage payments.)
Ensure that your overdraft protection suits your lifestyle, whether it’s linking your checking account to a savings account to handle negative balances, or pushing purchases you don’t have funds to cover onto a credit card and causing another financial error.
Though you may be charged a monthly fee for such services, they’ll be be nominal compared to standard overdraft fees, which can be as much as $35 per instance. If you’ve overdrawn your account, ensure that you deposit enough money to your account to cover the overdraft fee, the amount you’ve gone negative, and the amount needed to cover payments that have yet to process.
Use online and mobile bank apps to keep tabs on your balances, and opt in to email or text alerts that warn when you’re close to depleting your account.
If you’re not happy with the options at your bank, credit unions tend to have slightly lower overdraft fees than traditional banks ($27 versus $30, according to Moebs’ survey). If you’re especially cash-strapped, payday lenders may be a cheaper alternative than overdraft fees; they charge about $16 a transaction, according to Moebs survey.
3. Exceeding your credit limit
Under the CARD Act, you must opt in to allow your credit card issuer to approve an over the limit transaction; change your account parameters so future purchases exceeding your limit aren’t approved.
Aside from being assessed an over the limit fee, the real consequence to exceeding available credit lines is the damage inflicted on your credit score. Ideally, the ratio of available credit to balances is no greater than 30%.Aside from being assessed an over the limit fee, the real consequence to exceeding available credit lines is the damage inflicted on your credit score.
Set your sights on paying down account balances until you can get nearer to the ideal limits and pay cash for everything else. In time, you’ll slowly boost your credit scores, while learning to live within your means and avoid this financial error.
4. Overestimating the value of earning rewards
Reward credit cards have a way of making you use your credit card frequently — and credit card marketers know it.
Though it makes sense to get paid for things you’d buy regardless, racking up rewards may not help your credit — even if you pay the balance in full at the end of each month, because you’re pushing your debt utilization ratio too high and causing a financial error.
To correct the problem, pay your credit card balance by the statement closing date — not the due date. That way, a zero balance will be reported to the credit bureau — not the high balance that you accrued during the billing cycle.
Likewise, take advantage of online tools like Credit Simple, which analyze the best credit cards rewards options, so you’re actually earning the points that matter to your bottom line the most.