Whether you’re building your credit from scratch or have a lower credit score, it’s easy to get stuck with a card that ends up being more harmful than helpful. By the end of this video, you’ll know what to avoid and how to make smarter choices when it comes to credit cards.
1. Excessive Fees First up, let’s talk about fees. It’s pretty common for credit cards to have an annual fee, especially if you don’t have great credit. But there’s a difference between a reasonable fee and a card that’s just out to drain your wallet. Cards that charge application fees, activation fees, or monthly maintenance fees are often called “fee-harvester” cards. They may seem easy to get, but those fees can add up fast.
Example: Imagine a card with a $75 annual fee, plus $10 monthly maintenance. That’s $195 a year – just to keep the card! If your credit isn’t perfect, look for cards with low or no annual fees and avoid extra charges like application or processing fees.
Tip: Always read the card’s terms and conditions. Don’t just focus on getting approved – know exactly what you’ll be paying for the privilege of using the card.
2. High Interest Rates Next, we’ve got interest rates. If you don’t carry a balance from month to month, you don’t have to worry about interest. But let’s be real – sometimes things happen, and you can’t pay off your full balance right away. In that case, you need to know what interest rate you’ll be charged.
Story Time: I’ve seen cards that charge over 30% in interest! That means for every $100 you owe, you’re paying an extra $30 just in interest. Compare that to a card with a 16% interest rate, and you’ll see how big of a difference this can make.
Solution: If you have to carry a balance, try to choose a card with a lower interest rate. Secured credit cards and credit union cards often offer lower rates.
3. Low Credit Limits Low credit limits can be tricky. When you’re starting out, it’s common to get a credit card with a low limit, like $300. But here’s the catch – if your limit is low and you carry a balance, you might be maxing out your card without even realizing it. That’s bad for your credit score.
Example: Let’s say you get a card with a $300 limit and it has a $50 annual fee. That leaves you with only $250 to spend, and if you’re spending close to that amount every month, your credit utilization is too high, which will hurt your credit score.
Tip: Keep your spending below 30% of your credit limit – so in this case, no more than $90 at any time.
4. Partial Credit Reporting To build credit, your card needs to report your activity to all three credit bureaus: Equifax, Experian, and TransUnion. But some cards only report to one or two bureaus. Why does that matter? Because when you apply for loans, banks may pull your credit report from a bureau that your card doesn’t report to, making it look like you have no credit history.
Pro Tip: Make sure your credit card reports to all three bureaus so that your credit-building efforts aren’t wasted.
5. No Upgrade Path When you’re just starting out, you might have to settle for a secured or basic card. That’s fine – it’s part of the process. But once your credit improves, you’ll want to move up to a card with better perks, like cash back or lower fees. Some cards make that easy by letting you “graduate” to a better card without closing your account.
Why It Matters: Closing a credit card account can hurt your credit score, so it’s better to upgrade than to cancel and apply for a new card. Before you sign up for a card, check if it offers an upgrade path.
Final Thought: Don’t rush into getting a credit card just because you want one. Take your time, look out for excessive fees, high interest rates, and low credit limits. Make sure your card reports to all credit bureaus and offers the chance to upgrade. The right card can help you build your credit, while the wrong one can set you back.
With these tips, you’ll be able to spot the red flags and pick a card that works for you, not against you.
