As convenient as a credit card may be, there are certain situations where using one can land you in hot water. Here are seven times to consider putting that plastic away and to help ensure you are using credit responsibly.
1. You Can’t Pay the Balance
When times are tough, it may be tempting to pay for purchases with your credit card and ignore that you might not be able to pay off the balance when the bill comes due. Yet continuously missing your credit card payments may negatively impact your credit score. If you know you can’t make your payment, contact your credit card company immediately. Programs like Discover’s Payment Assistance gives cardholders options to deal with this situation.
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2. You Don’t Know Your Available Credit
If you don’t know how much room you have left on your card, you should check your account to become aware of your credit limit. If you exceed your credit limit, your purchase may be declined. However if it’s accepted and your balance goes over your credit limit, it may have a negative impact on your credit score and signals to lenders that you may be having financial difficulties. 1
3. You’re Applying For a Mortgage
When you apply for a mortgage, you want to present the strongest application possible, and that means showing a good credit score. If you max out your card, or even have late payments on your credit history, your credit score may take a hit. A lower credit score could mean a higher interest rate on your loan, or jeopardize the approval altogether. If you have a large credit card balance, it will also affect your debt-to-income ratio, and may impact the mortgage amount you’re approved for. 2 So if a mortgage application is in your near future, lay off credit card spending for now.
4. You’re Feeling Down
If you’re struggling with feeling blue, be extra cautious about buying items on your credit card. The short-term high that may accompany an impulse purchase can swiftly turn to anxiety when you realize you didn’t need what you bought, and you can’t pay for it. Instead, look for another activity to cheer you up — preferably one that is free, such as a brisk walk, reading or watching a favorite funny movie.
5. Your Senses Are Impaired
Late night online shopping in the wake of a wine-filled evening can sometimes be a recipe for disaster, leading to purchases your sober self really doesn’t want or need. Alcohol and medication may impair your judgement and your ability to make sensible financial decisions. Avoid making impulse credit card purchases, or you could end up with a hefty bill.
6. You’re Feeling Coerced By Another
If you’re in a relationship with someone who’s encouraging you to use your credit card to make purchases you don’t feel good about, it’s time to hide that credit card. Financial abuse may take many forms, and includes being bullied into using your credit card to buy items for the benefit of another. For more information on identifying and reporting financial abuse, visit the government of Massachusetts’ list of Indicators of Financial Abuse and The National Institute of Justice’s page on the Financial Exploitation of the Elderly.
7. You Don’t Trust the Person/Business Processing Your Credit Card Transaction
Whether you’re standing at a counter or staring at a computer screen, if you are at all suspicious of the person or business about to process your credit card transaction, it may be wise to delay or cancel the purchase. If the transaction has already been processed, be sure to check your account to ensure that you authorized all of the transactions that post.
Credit cards are a convenient payment method for many people, yet in some situations they may not be the best option. Recognize when not to use a credit card, and sidestep potential financial headaches.