Credit cards are a great way to build credit and pay for expenses. But when misused they can damage your credit score and cost lots of extra money. Here are common Credit Card Mistakes You Might Be Making and how you can avoid making these mishaps.
A credit card is a great asset, but when you use it incorrectly it can cost you a pretty penny. Carry a balance and pay high interest rate charges.
Miss a payment and incur a late fee. Close a credit card and ding your credit score. The costs add up quickly.
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But it’s not hard to get into the habit of using your credit card correctly. And as a result, you can save money while building credit and maybe even take advantage of some sweet perks along the way.
Credit cards can be a boon to consumers, providing many advantages and benefits. Because they’re such a great alternative to cash. They’re great if you need to make purchases when you find yourself in a pinch.
Some cards offer perks like rewards like cash back or travel miles. While others give you some added protection for your purchases.
If you play your cards right and pay your balances off each month. You’ll never have to pay a dime in interest.
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Plus, being a conscientious credit card user can help boost your credit rating. However, these little pieces of plastic can also be a curse. Especially if you’re already swimming in debt or just don’t know how to keep a handle on your finances.
Thousands of consumers have trouble getting their credit card balances under control. If you’re among these consumers, don’t despair.
You’ll make your debt more manageable once you choose to change your spending habits. Take a giant step in this direction by avoiding—or stop doing—these major credit card mistakes.
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Credit Card Mistakes You Might Be Making
1. Chasing Credit Card Rewards
Credit card rewards are usually worth far less than the extra interest you’ll accrue if you can’t pay off the money you spend to earn those bonuses. Credit Card Mistakes You Might Be Making
You may, for example, receive one point for each dollar you spend, but you’ll probably need to redeem 5,000 points to get a $100 discount on a plane ticket.
Since the interest charged on outstanding account balances often exceeds the typical 2% bonus, it may not be a worthwhile trade-off.
You should also avoid signing up for multiple credit cards, regardless of bonuses. If you already know you don’t manage credit cards well, don’t add temptation in the form of additional cards.
It’s also easier to miss a payment deadline when you have more cards than you can manage. Remember, a few late fees or interest payments will quickly obliterate those sign-up gifts or rewards.
You can use your cards more frequently once you have your debt paid off and know how to avoid new debt.
As long as you pay your balance in full and on time each month. There is nothing wrong with using credit cards instead of carrying cash or to take advantage of rewards like cash back or frequent flier miles.
Just make sure those purchases fit within your monthly budget.
2. Neglecting To Review Your Billing Statement
It’s important to check that the transactions listed on your bill are accurate so you can take early action against fraudsters or reporting errors. Credit Card Mistakes You Might Be Making
At the very least, you should review your monthly statement for errors. But it’s a good idea to check your transactions a few times each week to verify everything looks OK.
You should be proactive about reviewing the charges that appear on your account so you can potentially spot fraud early and resolve any incorrect charges.
3. Ignoring Your Debt: Credit Card Mistakes You Might Be Making
Some folks get so stressed out or embarrassed by credit card debt they stop opening their bills and pretend there’s no problem. It’s obviously a bad approach because, while you’re ignoring the bills. The ticking time bomb of interest rates is adding to the debt.
In addition, if you miss a payment or two, the interest rate may shoot higher under the terms of the card agreement. You can call card companies if you feel overwhelmed and ask to renegotiate the terms of your agreement.
You may be able to get the interest rate lowered, set up a payment plan, or get some of your debt forgiven. If your first call doesn’t work, keep calling back because a different customer service representative may allow you to negotiate a better deal.
Ignoring debt can also lower your credit score and spur debt collectors into action. With unsavory tactics often employed in this industry, you don’t want to do anything that puts you on their radar.
Finally, don’t let embarrassment prevent you from taking action. You may assume that everyone else has their finances under control, but many other consumers face similar debt problems.
4. Missing a Payment
Late or missed payments can seriously hurt your credit score if you’re more than 30 days past due. You can expect a drop of 17 to 83 points for a 30-day missed payment and a 27 to 133 decrease for a 90-day missed payment, according to FICO data.
However, if your payment is less than 30 days late. You won’t see a drop in your credit score since a payment has to be a full 30 days past due before it’s reported to the credit bureaus (Experian, Equifax and TransUnion).
But you may incur a late fee or penalty interest rate — which raises your APR. Set up autopay to ensure payments are always made on time. And if autopay isn’t for you, set calendar reminders and email notifications.
5. Canceling Your Card Impulsively: Credit Card Mistakes You Might Be Making
Generally, you may be able to close a credit card account anytime by calling your credit card company or going online.
Before your account is closed, the CFPB says you’ll need to pay down any balance on schedule. The agency also says your card issuer is allowed to charge interest on what you owe.
But closing the account might also affect your credit in other ways. First, it could affect the length of your Credit History.
And remember credit utilization in the sixth mistake above? If you have multiple credit cards, closing one might increase the percentage of available credit you’re using.
So it might be helpful to fully consider the potential effects before closing an account. But there’s one thing you don’t want to wait on, and it happens to be the final mistake to avoid.
6. Using Credit Card to Pay Medical Bills
Medical bills can be overwhelmingly expensive, especially if you’re uninsured. Credit Card Mistakes You Might Be Making
If you’re having trouble paying your medical bills. Negotiate an agreement with the hospital or other company to whom you owe money.
Don’t add to your bills and stress by adding exorbitant credit card interest rates onto them. You should also go through your medical bills a second or third time, making sure they are accurate and you understand all the charges.
7. Using Credit Card for Everyday Items
Another trap people often fall into is using their credit cards for regular, everyday purchases. Credit Card Mistakes You Might Be Making
Unless you follow a monthly budget and can easily pay your credit card balance in full each month. Charging non-discretionary expenses on a credit card can be dangerous.
By keeping common purchases like groceries and utility bills off of your credit card balance. You’ll take a major step in getting spending under control.
Consider that a $3 gallon of milk bought with a credit card will eventually turn into a $30 gallon if you don’t pay off the balance at the end of each month.
There’s no reason to incur interest charges on necessary items that you should buy directly with monthly income with cash, check or debit card.
8. Taking Cash Advances
Credit card companies employ tactics like sending checks in the mail. Encouraging you to use them to pay bills or to treat yourself to something nice. Credit Card Mistakes You Might Be Making
But they rarely make it clear that these checks are treated just like cash advances. Taking a Cash Advance is dangerous because you start to accrue interest immediately, unlike regular credit card purchases.
In addition, there’s often no grace period and you’ll be charged an automatic fee that can run as high as 4% on the amount of the advance.
To add insult to injury, the credit card company may not consider the cash advance to be paid off until you’ve zeroed out the balance for your other purchases.
The best thing to do with these Checks is to shred them as soon as you receive them, avoiding the temptation while preventing would-be identity thieves from snagging account numbers out of the trash.
Many companies also send a Personal Identification Number (PIN) shortly after you sign up for a card, hoping you’ll use it to get cash from an ATM. Shred that paper, too.
9. Late Payments: Credit Card Mistakes You Might Be Making
Don’t make late payments. Doing so will damage your Credit Score and will also incur late payment charges on your account. Your credit cards will likely have a regular due date every month—say, the 15th of each month—and it rarely deviates.
So it’s important to know when your bill is due. If you have trouble remembering when your payment is due, try adding a reminder on your phone or computer, or circling the dates on a calendar that’s easily accessible.
10. Not Comparing Credit Cards Before Applying
A credit card is a financial commitment, so it’s important to make sure the card fits your situation so you’re able to use it responsibly.
Shopping around could help you avoid fees and find the card with the best interest rate, according to the CFPB. One step might be Pre-approval. Getting pre-approved is no guarantee of approval, but it can give you more confidence when you apply.
And it might help you avoid unnecessary inquiries if you know your application is likely to be declined. Doing some research could also help.
If you know you have a Fair Credit Score, it might help you narrow down your options.
Applying for a bunch of cards could affect your credit and so can closing existing accounts. That brings the list to its ninth mistake…
11. Carrying a Balance Month-To-Month: Credit Card Mistakes You Might Be Making
One of the biggest credit score myths is that carrying a balance on your credit card improves your credit. In fact, 22% of Americans carried a balance thinking it would increase their credit score.
In reality, carrying a balance month-to-month hurts your Credit Score and costs you money. If you carry a balance, you’ll have a higher credit utilization rate, which is the amount of debt you have compared to your available credit.
Experts agree that the lower your utilization rate, the better. A FICO study found “high achievers” — consumers with an average 800 FICO score — on average use a mere 7% of their credit limit.
Carrying a balance can also get expensive thanks to interest charges. And while a Cash-Back Card can be a great tool to help you save money on your everyday spending, all that savings is for nothing if you’re paying interest.
12. Maxing Out the Credit Card Credit Line
If you don’t have the money to make payments, you shouldn’t be using the credit card—and you shouldn’t be maxing it out.
Remember, credit cards also charge over-limit fees, so if you fall behind on your payments, the interest will kick you over your limit and you’ll have to pay more in fees.
13. Only Making Minimum Payments
While you should always make at least the Minimum Payments, it’s not advised to only pay the minimum due.
Not paying your bill in full can lead you to fall into debt and rack up unnecessary interest charges. Plus, just paying the minimum can add months — even years — to the time it takes you to pay off debt.
Have a payment plan in place before you take on bigger expenses, and always make consistent, on-time payments toward your balance.
14. Not Understanding Terms of the Account Agreement
Banks and credit cards supply the terms and conditions of specific cards at the time the application is completed and when the card is issued.
It’s important to know what these terms and conditions are before you use the card. Doing so will help you have a better handle on what’s expected of you from the credit card issuer, and it will also help you manage your spending habits better.
15. Hitting Your Credit Limit: Credit Card Mistakes You Might Be Making
If you’re approved for a credit card, the issuer will assign you a Credit Limit. This is the maximum amount you can charge to your card. While you’re allowed to use the entire credit limit, doing so could hurt your credit scores.
That’s because a portion of your credit score depends on the amount of credit you’re using compared with what you have available. This is known as your Credit Utilization Ratio. According to the CFPB, getting close to your credit limit could hurt your credit scores.
They say experts advise against using more than 30% of your total credit limit—across all accounts. Maxing out your credit cards isn’t the only thing that can affect your credit. So can the next mistake…
16. Not Knowing Your APR and Applicable Fees
When you apply and are approved for a credit card, you receive a long cardmember agreement that probably doesn’t top your must-read list.
However, it’s important you parse through the jargon and review important account terms, so you understand all the applicable fees.
Here are some key terms to look out for and what they mean:
- Annual fee: The yearly fee charged for holding a card.
- Purchase APR: The annual percentage rate is the yearly interest rate purchases are charged when you carry a balance month-to-month. Simply divide by 12 to get the monthly interest rate.
- Balance transfer APR: Often the same as the purchase APR, this interest rate applies to balance transfers.
- Penalty APR: Card issuers may penalize you with an interest rate that’s higher than your regular APR when you pay your balance late.
- Late Payment Fee: If you pay late, you’ll incur a fee up to $29 for first-time instances and up to $40 for subsequent violations made within six billing cycles. Some cards waive this fee.
- Foreign transaction fee: Purchases made outside the U.S. often incur a fee, typically 3% per transaction.
- Balance-transfer fee: When you transfer debt, you’ll often incur a 3% to 5% fee.
17. Not Understanding Introductory 0% APR Offers
Many credit cards come with introductory 0% APR offers, where you won’t be charged interest on new purchases, balance transfers, or both, for a set time frame.
These offers can be a great way to pay for expenses over time without incurring interest charges.
However, you should review the fine print associated with the offers to know exactly when the intro 0% APR period begins and ends, as well as the terms once the offer ends.
18. Not Knowing Your Credit Card Terms
Knowing how your credit card company handles late payments makes you more likely to pay your credit card bill on time. Knowing your credit card terms gives you more control over your credit card costs.
You know how you should and should not use your credit card based on how your creditor will respond to your actions.
Review the terms of your credit card at least once or twice a year. You can find them at your credit card issuer’s website or request them from customer service
19. Applying For Too Many Credit Cards At Once
Each credit card application has the potential to Knock Points Off Your Credit Score.
If you apply for several credit cards within a short period of time. You might notice the denials are more frequent as lenders start getting suspicious about the sudden onslaught of credit card applications. Apply for new credit cards one at a time on an as-needed basis.
20. Neglecting Your Monthly Statement: Credit Card Mistakes You Might Be Making
Your credit card statement is a document that summarizes your credit card activity over the previous month—among other things.
While that might sound boring, your statement is actually full of helpful information. And knowing what’s in it can help you keep your account in good standing.
For example, your billing statement includes your Statement Balance, minimum payment and due date. It also tells you how much interest you’ll pay if you make only the minimum payment.
And it might be a chance to spot fraudulent activity on your account. At the very least, you can check your statement to find out how much you owe—and when.
You can also use your statement to keep an eye on how close you are to maxing out your card. That brings the list to the sixth mistake…
21. Closing a Credit Card
The average length of time you’ve had credit is one factor making up your credit score. When you close a credit card, the average length of your credit history is affected.
For example, if you have a card that’s 5 years old and a card that’s 2 years old, you’ve had credit an average of 3.5 years. If you close the 5-year-old card, your age of credit decreases to 2 years.
It’s generally not advised to close a credit card, especially your oldest card. Although, there are times when it can make sense to close a credit card, such as when you’re charged an annual fee that isn’t outweighed by the card’s benefits.
22. Maxing Out Your Credit Card: Credit Card Mistakes You Might Be Making
Using the majority, or all, of your available credit is never a good idea. Your utilization rate will be very high, which can lower your credit score.
The amount of credit you use plays into your utilization rate, and, like we mentioned above, the lower your utilization the better.
If you find yourself frequently charging close to your limit each month, and you have no problem paying off your bill, then you can call the credit card company and ask for a credit increase.
23. Letting Your Credit Card Get Charged-Off
A Charge-Off is one of the worst things to happen to your credit report and your credit score.
This is when your account has become delinquent to an extent that the lender will sell the debt to a collector for pennies on the dollar and write off the remaining balance as a loss.
The charge-off listing will remain on your credit report for seven years and could affect your ability to get credit cards and loans in the future.
It takes six months of missed payments to get to charge-off status. Bring delinquent accounts current before it gets to that point.
24. Waiting to Report a Lost or Stolen Card: Credit Card Mistakes You Might Be Making
Whether your physical card is stolen or just your credit card information, your liability for Fraudulent Credit Card Charges tops out at $50.
That’s according to the Fair Credit Billing Act. But that’s only if the fraudulent charges are investigated and verified. And for that to happen, you have to report them first.
If you act fast and report a lost credit card before it’s used, then you may not be responsible for any charges you didn’t authorize.
That’s because some credit card issuers might waive your liability for any fraudulent charges. But the key is to report a missing or stolen credit card as soon as possible.
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