(Host) Credit cards get heavy use this time of year, and most people use their credit cards wisely.
Only about 1 in 20 American households owes eight thousand dollars or more on credit cards.
But financial experts say there are pitfalls to be aware or when shopping with plastic.
VPR’s Nina Keck has more.
(Keck) How many times have you been shopping when the cashier mentions that you can get an additional 10 to 15% off if you apply for a store credit card? Sounds pretty good right? Wrong:
(Woolf) “The problem is if you have a lot of credit cards that negatively affects your credit score.”
(Keck) That’s Art Woolf – Director of the Vermont Council on Economic Education.
(Woolf) “There’s a company called Fair Isaac and everyone has what’s called a FICO score – which is just basically a way of assessing your risk. And the more credit cards you have the higher a risk you’re going to be for paying off your cards – which means you’re going to have to pay a higher interest rate on any card you have. And also a higher interest rate on a car loan at a bank or a home mortgage.”
(Keck) Financial experts say the best policy is to have one or two credit cards and pay off your entire balance every month. Art Woolf says it’s easy to get lulled into paying the minimum monthly requirement. But he says people need to realize how expensive that can be.
(Woolf) “Let’s suppose you buy a $1000 high definition TV. And you decide to only pay the minimum bank payment on your credit card. And you have a credit card interest rate of 17%. It’ll take you twelve years to pay that TV off. The TV will probably not even be around in twelve years. And not only will you pay the thousand dollars for that TV but you’ll pay almost an extra thousand dollars in interest for that TV so it will really cost you twice as much.”
(Keck) If you do have to carry a balance, Woolf says shop around for a card with the best interest rate. One last bit of advice – Be very careful of emails – supposedly from banks, credit card companies or PayPal – that ask you for personal information.
(Woolf) “Even though it looks legitimate, it’s very easy for a scam artist to just copy the logo of any bank or credit card and put it in an email and make it seem like the bank is telling you something is wrong with your account. And put your account number and sign in so we can tell you what’s wrong. In reality, they’re just trying to get your personal information.”
(Keck) Whatever you do, don’t reply to those emails. Woolf says if you’re unsure what to do – call your bank or credit card company directly.
For Vermont Public Radio, I’m Nina Keck.