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Recognizing Credit Card Abuse

What is credit card abuse?

Credit card abuse is, simply put, a failure to observe the rule of proper credit card use. Some symptoms of credit card abuse are described below.

Your usage patterns have changed

When you first got your credit card, you had no trouble confining your charges to convenience items and small purchases. Lately, though, you have been relying more heavily on your card for larger items, and you’re not all that concerned about how long it will take to pay off your charges. If this pattern continues, you could easily get in over your head.

Your card company gives you higher and higher limits, and your card is still maxed out

Your credit card issuer may periodically increase your credit limit. You should not interpret this as an opportunity to drive your balance even higher. In fact, if you have already maxed out your credit card, it might be a good idea to refuse an increased credit limit. (You can do this by contacting your card issuer’s customer service department.) This will remove the temptation to spend even more and give you an opportunity to pay down your existing balance

You use a cash advance from one card to make payments on another

In general, one of the surest signs of credit card abuse is when you use one credit card to make payments on another. If you’re taking cash advances because you can’t make your minimum payment any other way, you are in credit card trouble. Cash advances carry higher interest charges than regular credit card purchases, and the interest applies from the minute your cash advance check is cashed. There are limited circumstances, however, when it is acceptable to do this. Two such circumstances are if you’re using a balance transfer to switch to a lower interest card, or if you’re using an interest reduction strategy to pay off a higher interest card.

Your payments are frequently late

Credit card companies keep track of late payments. They might not flag your account after the first occurrence, but a pattern of late payments tells them–and other creditors–that you are in credit trouble. If you find yourself in the habit of delaying your payment, you’ve probably over extended yourself.

Your account balance seems to get bigger even though you’re making payments on it

If you only make minimum payments and continue to add charges to your account, you’ll never pay off your balance. In many cases, your minimum payment covers little more than the accrued interest on your balance, while the principal balance remains virtually untouched. If you continue to use the card, even small purchases will cause your outstanding balance to grow faster than your minimum payments can reduce it.

Credit card companies are required to notify consumers in writing on each billing statement the number of months and the total cost (including principal and interest) involved in repaying the current balance if only the required minimum monthly payments are made. In addition, they must indicate what the monthly payment would need to be to pay off the current balance in 36 months.

You apply for additional credit cards because you need a higher credit limit

If you reach your credit limit on one card and immediately look for another, you’re probably overcharging. As long as you’re making your monthly payments (even if they’re only the minimum payments), credit card companies will continue to send you card offers. You have to get control of your credit card spending before you find you can no longer make those minimum payments.

You’re getting turned down when you apply for additional credit

If your credit card applications are refused, you have over extended your existing cards. The first time you are refused, check your credit report and make sure it doesn’t contain any erroneous information. If it does, be sure to correct the errors as soon as possible. If you still can’t get a new credit card, issuers may believe that you are no longer a good credit risk. You should interpret this as a suggestion to start paying off your outstanding balances.


IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any matter addressed herein.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018


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