Credit Card Behavior That Can Have A Negative Impact On Your Credit Score

credit risk

Owning a credit card can be exciting especially for first time cardholders.  After all, a credit card gives you the power to buy what you want today at just one swipe of the card.  Even if you don’t have cash, you can make the purchase right away and worry about repayment later.

However, credit cardholders should be aware of the risks involved if the account is not managed correctly.  What kind of dangers are associated with credit card abuse?   Consider this list:

Uncontrolled Debt.  It’s easy to charge a purchase to a credit card without considering repayment obligations.  Sadly, many credit cardholders have found themselves drowning in  debt because of poor spending habits.  Don’t let yourself be caught up in this trap.

Before using your credit card to buy anything, ask yourself, “Can I credit riskafford to pay back the charges in full and on time?”; “Do I really need to make this purchase now?”; “Will it be safer if I use cash for payment instead of charging it to credit?”

ID theft and fraud.  Many cardholders prefer to shop online. While there can be advantages to buying online such as convenience and a lower price, shoppers should protect themselves against the threat of Identity Theft and Fraud.

  • Purchase only from a reputable online merchant.
  • Make sure that the website uses a secured server with at least 128-bit of encryption technology to make sure that credit card information you provide online will be safe.
  • Consider using a service like paypal to safeguard your credit card number
  • Call your credit card company and see if they offer a special credit card number for online purchases only

A secured web page should begin with the URL “https”, instead of the normal “http”, used in unsecured sites.  You should be able to check this from your browser’s address bar.  You should also see a locked pad lock icon on the bottom right corner of your browser.

Maximizing limit.  Using your credit to its limit also has its dangers.  First, you risk the chance of going above your limit.  If you go above your limit, your bank will issue a fee.  Also maxing out your credit is the the first warning sign that you may have some serious debt problems. Secondly, your credit score can significantly drop if you frequently max out your credit limit.  This is because 30% of the FICO score is based on credit utilization.

Providing supplementary credit cards.  If you are a parent, you may consider giving your child a supplementary credit card.  This means, your child can use the credit card to buy things or pay bills but all charges will reflect on your account.  While this might seem harmless, you want to make sure that your child clearly understands how to manage debt and credit responsibly.  If your child racks up a large bill to your account, your personal credit score can suffer.

If you are a business owner using a credit card for business, you also have the option to distribute supplementary credit cards to your employees.  This can make business operations run more smoothly but you want to make sure that you only hand out a credit card to your most trusted employees.  In addition, you should regularly monitor your account so you can be immediately alerted if your credit is being used on unofficial expenses.

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