What are the Risks of Using a Credit Card?

  • Print this article
Never give out your credit card number to strangers over the phone.
Never give out your credit card number to strangers over the phone.

Most Americans consider credit cards as a necessity. Introduced in the 1920s, credit cards remained a luxury in 1951, according to Time. Now, they provide a convenient option for purchases, bill payments and online shopping. They often are required for such services as renting a vehicle or booking a hotel room. However, having a credit card requires the consumer to use it responsibly, as there are risks.

  1. Increased Debt

    • Financial experts suggest that you pay off your credit cards in full each month. When the debt isn't paid off, interest accrues, increasing the dollar amount owed. The Credit Card Accountability, Responsibility and Disclosure Act of 2009 passed provisions that help consumers deal with credit card debt, including forbidding credit card issuers from retroactively raising interest rates on pre-existing debt. But, the issuers can charge high interest rates, which can keep you in debt much longer. For some, the debt-load becomes so great that filing bankruptcy becomes the only remaining option.

    Damaged Credit

    • According to the inventors of the FICO scoring model, Fair Isaac Corporation, 35 percent of your credit score reflects bill payment. Late payments reduce your score, and, the later the payment, the more damage. If a creditor is unable to collect a credit card debt, that item is charged off as noncollectable. Charge-offs tell future lenders that you did not honor your responsibility. Debt that isn't repaid is usually sold to debt collectors, who then add on more fees to the existing amount. The new amount is reported to the credit bureaus, further damaging your standing. It also can expose you to lawsuits and judgments. The collector or creditor can garnish your wages or seize money from your bank accounts, depending on the individual laws of your state.

    Fraudulent Charges

    • Credit card use carries the risk of identity theft, the number one consumer complaint of 2009, according to the Federal Trade Commission (FTC). Criminals can tamper with credit card swipe equipment and record your credit card number and personal identification number (PIN). They also lurk online, so shop at established sites. Some sites appear to be legitimate merchants but are shams. Most credit card companies will not hold you responsible for fraudulent charges; report any suspected theft immediately. Clearing your credit report of fraudulent accounts and collections can be an arduous journey. Be mindful of where and when you decide to use a credit card, and remember to check your credit report at least once a year.

Related Searches

References

Resources

  • Photo Credit Credit card globe image by patrimonio designs from Fotolia.com

Comments

You May Also Like

Related Ads

Featured
View Mobile Site