A credit card can be an excellent financial tool—it helps build your credit history and gives you leeway to purchase things you need even when you don’t have the cash on hand. However, misusing it often results in a poor credit score and finding yourself knee-deep in debt. Steer clear of the ten worst habits to avert such financial disasters.
The 10 Credit Card Mistakes to Watch Out For
Everyone makes mistakes with credit. Here are the biggest ones people commonly make, plus advice for rebounding from each one.
1. Paying Only the Minimum
Making only the minimum payments puts you in debt longer. Without settling outstanding balances, you incur interest on the remaining principal. You’ll have more money in your pocket at the end of the month, but you will end up paying much more than the original balance once you pay it off.
Every month, fully settle your balances or pay more than just the minimum. If the amount due is too high, restructure, consolidate, or transfer it to a card with a lower interest rate.
2. Delaying or Missing Payments
Missed and late payments lead to high penalties, increasing the balance owed. Both are also damaging to your credit history—the more late payments or the longer the delinquency, the lower your score will be.
Send your payments on time by setting reminders or arranging for automatic payments.
3. Ignoring Billing Statements
Among the 10 worst credit card mistakes you can make is to ignore your monthly statements. Failing to check them regularly causes you to overlook possible fraudulent activities and miss important announcements on significant changes.
Save yourself from future headaches by always opening billing statements to monitor:
- Amounts charged
- Charges you didn’t make
- Term revisions
- Due dates
4. Exceeding Credit Limits
Going over your credit card’s limit will cost you—dearly. If you’re enrolled in an over-limit program, understand that card companies charge hefty fees whenever you exceed your credit line. Besides higher penalty interest rates, you risk harming your FICO score as it signals your inability to manage debt.
Practice self-discipline and keep track of your purchases. If making another purchase puts you at risk of maxing out your credit card, pay in cash instead.
5. Running High Balances
Carrying high balances hurts your credit utilization ratio, which credit bureaus look at to see what percentage of your available debt you’re using. Going above 30 percent of your total limit can negatively affect your credit score—it indicates risky borrowing behavior.
Settle most of your debt immediately to maintain low balances. If you frequently reach the limit, request a credit line increase to lower the utilization rate to more favorable levels.
6. Loaning Your Card
You might feel inclined to help family and friends by loaning them money through your credit card. However, it will cost you, especially if they don’t make good on their promise to repay. Keep in mind that when the bill is due, the responsibility to pay it is still yours.
Never loan out your credit card unless you’re prepared to take on the additional debt.
7. Getting Too Many Cards
One of the 10 worst credit card mistakes many people fall prey to is having one too many. More credit cards mean a lower utilization rate, but it makes you less desirable as a borrower—lenders will consider the possibility of you using up all your limits. Moreover, applying for too many credit accounts within a short timeframe is considered suspicious behavior and impacts your FICO score.
While you can get by with one credit card, having two to four more is still safe. Be sure to space out your applications and only apply as needed.
8. Closing Your Accounts Early
Canceling your credit card isn’t always a good idea. It reduces your overall credit limit and increases the utilization rate for outstanding balances, hurting your credit score.
Leave your credit cards open until you’re sure closing them won’t affect your credit standing. Or downgrade them to suit your needs better.
9. Choosing the Wrong Card
Not all cards are created equal. There are different credit card tiers, features, and perks, so it’s vital to do your homework first before getting one. The wrong card won’t be as rewarding if it doesn’t fit into your lifestyle. It can also be expensive with higher annual fees and reward tiers.
Pick a card based on your needs and spending patterns. For instance, if you travel a lot, pick a card that offers frequent flyer miles, which you can redeem to reduce the cost of your airline tickets.
10. Misunderstanding Credit Card Terms
Perhaps the most common of the 10 worst credit card mistakes is failing to understand the terms and conditions. Many cardholders commit this blunder, only to be shocked when their billing statements come in.
Most of the important details are written in fine print, so go over them at least once to know what to expect. Pay close attention to items like:
- Late payment fees
- Annual fees
- How your interest rate changes if you miss payments
- Differing interests rates for different uses (for example, cash advances)
- Other fees
Don’t Let Credit Cards Use You
Credit cards can be a valuable tool—after all, having no credit puts you in worse standing with lenders than bad credit does—but using them wisely is absolutely imperative. Use our tips to avoid making credit card mistakes and let your card work for you, not against you!