Factors That Credit Card Companies Look at When Evaluating an Application
The idea is to learn from what others may have done in the past. That way you do not make the same mistakes they did. I know, it is easier said than done. Our culture has a long history of repeating the same old, same old.
What can you do?
The first thing you can do is take a look at these five mistakes that other credit cardholders have had done. Stop the madness. Learn from history instead of repeating it.
1)Racking Up the Debt On Ill-Advised Purchases
Some people use their credit cards as a crutch. They use the card to buy things they might not normally buy. They figure, "Hey, I do not have the cash on me, so charge it. I will pay for it later."
Say Chuck goes into the grocery store to buy food for the month. Chuck has his cash and his list. While he is shopping, he notices some other things that he would like to have. He, unfortunately, only has money for what is on his list.
Chuck decides to throw caution the wind and piles the other various items into the cart. He charges the things he does not have cash for. His bill total to more than $300.
He buys $100 worth of groceries in cash and charges the other $200. He sees that he can do that every month. His bill starts to increase to more than $1,000 over the next few months. He has every intention of paying off the bill, but he continues to buy more things, knowing that he only has to pay the minimum amount every month and that his company just raised his limit.
Chuck has found himself in the revolving door debt cycle. Chuck is beginning to realize that he can only make minimum payments every month, while his bill keeps compounding in interest.
Chuck's story is one of the millions of ongoing credit card debt scenarios.
The bottom line: Learn from Chuck's story. Do not create one of your own. Treat your credit card like a debit card. Things may go a lot smoother for you.
2)The Minimum Payment
This is an extension of what I was talking about with Chuck's story. Some people make the mistake of only paying the minimum. That is all they feel they have to or need to pay.
Now, in truth, that is all you do need to pay every month. You have to give credit where credit is due. However, many financial experts argue this pattern is why so many clients find themselves in that hole. This pattern is also another way the companies make their money off of you. They make money off your or minimum payment, knowing that your bill has yet to be paid in full.
Try to, if you can, pay more than the monthly minimum. That minimum only goes to cover a portion of the interest you have accumulated, not much else. Your monthly minimum payment does not even cover the initial balance you accumulated. That is why you need to be extra careful about how you spend your money and how much.
You owe $1,000 on your bill. Your rate every month is at least 19%. Chuck's payment will cover only 1% of the bill, plus a small amount of interest. Chuck is going to spend the next ten years, maybe more, depending on his spending habits, paying everything off. Plus, Chuck will have to contend with $1,000 in interest, maybe more if he is lucky. His $1,000 bill just became a $2,000 plus bill in ten years.
I know that sounds strange, and I even did not know this until I read it, but you should treat your credit card as free money. Here is the thing: Most customers restrain their spending habits if they solely rely on cash. They do not have the money for anything else.
"A kid in a candy store!"
Getting a credit card is like a free ride to do anything you want. However, there is a lot of responsibility for this freedom. Some people figure they can buy what they want without looking at the balance. That is where they make some of their biggest mistakes.
A credit card is not free money. You will have to pay everything back. This is not like using your parent's credit card where they paid for everything. You are now responsible for your money. A credit card is not a license to drive wherever and however you want. Drive responsibly.