3. Cash Advances
A cash advance is either a small loan or a withdrawal from your credit card account. The usage of a credit card cash advance is discouraged because there can be high fees and interest rates related to the withdrawal.
Your annual percentage rate and fees may differ depending on your bank and credit card issuer, but frankly speaking, the APR for a cash advance is higher than the APR for a purchase.
For instance, you might have a credit card with a purchase APR between 11% and 12% and a cash advance APR of at least 25%. Another potential expense is a transaction fee, which may be a flat rate or a percentage of the transaction value.
Cash advances are undoubtedly needed occasionally, but they should only be taken out in true emergencies. Always look for credit cards with fair cash advance costs as well.
4. Making Down Payments on Anything
It is alluring to put a down payment on a car, a boat, or even a house using a credit card. Consider how many points or miles you could earn! However, this is not a good idea unless you are using the card only for the points and can pay off the entire amount charged as soon as the payment is due.
Current new auto loan APRs are 5.05 percent for 48 months and 4.99 percent for 60 months. Since very few credit cards have interest rates that low, it would be more prudent to finance the amount after making the smallest cash down payment. You might not be able to buy the car if you lack the necessary funds. (Not all automobile lots will accept credit cards; CarMax is one example.)
It would be even worse to charge for the down payment on real estate. Few people have credit card limits high enough to cover the standard 10% to 20% down payment on a house, and even those who have would probably experience a drop in their credit score.
Your FICO score, which accounts for more than 90% of lending decisions in the US, may plummet by at least 40 points if you max out even one credit card. In any case, you can’t put a down payment on a house straight on your card; you have to use a cash advance, which is also a bad idea, or a mobile payment app like Venmo, which will charge you a 3 percent fee on top of your payment.
5. Making “Sin” Purchases
Credit cards are accepted in lovemaking establishments, on pornographic websites, and even when hiring call girls. Billing from these sources could appear to be “consultation fees” or another form of anonymity, but all card purchases are tracked in a virtual database, making them usually traceable by hackers and law authorities.
Remember that if you use your card to pay for a hotel room or an expensive meal somewhere you shouldn’t be, or if you buy gifts for somebody who aren’t your partner of record, you could be more easily identified.
A solid rule of thumb is to never charge something on your credit card if you wouldn’t publish it on social media.