Credit cards are one of the most popular forms of payment worldwide. The convenience, security, and many other benefits they provide have allowed them to be the dominant form of payment choice for today's consumers.
However, they can also do more harm than good if not used properly. The wrong moves could cost you money, lower your credit score, and land you in debt. That’s why understanding and avoiding the worst credit card mistakes is important to protect your credit report and stay out of debt.
Below, we have listed the common credit card mistakes you can learn to keep your credit history intact and your wallet happy.
Why Do We Need to Avoid Credit Card Mistakes?
Are you still unsure about why credit card mistakes are so bad for you or your business? Well, for one thing, credit cards have become a part of our daily lives. You probably use them for pretty much everything — from buying groceries to paying your bills. They offer convenience and help in times of emergency.
Here are the top reasons why we need to use our cards responsibly.
Avoid Costly Charges
This is the most important credit card rule you should know about. Using your credit card is convenient, but if you're not using it responsibly, you'll end up paying the price.
Credit cards can be a great tool for spending and earning, but if you're not smart about it, you can end up paying more than you want. For example, each time you fail to pay on time, you’ll bear the late payment fees or penalties.
Interest charges are one of the most costly expenses involved with using your card responsibly. Paying your credit card on time and keeping your credit card debt low can make a big difference in how much interest you end up paying.
Maintain a Good Credit Report
Everyone knows there are benefits to having a good credit report. A credit score is based on how good you are at paying your bills and staying out of debt. A great credit score means that you are very likely to pay your bills in full and on time.
Credit scores are used by lenders to help them make decisions about your creditworthiness when they are to loan you money. Plus, it's the most well-known way to avoid being charged high interest rates. If you have a high credit score, you will be eligible for some credit cards with 0% interest and other great deals.
In general, the way you use your credit card deeply affects your credit rating. Every improper use or failure to pay your balance is a reduction in your score. So, it’s always important to use it properly and be a responsible credit card holder.
Enjoy Continued Convenience
We're living in an increasingly cashless world. More and more people are using their cards for payments, whether that's swiping their card to buy groceries, booking a flight, or simply paying for a cup of coffee.
It's convenient and easy, but with more convenience comes added responsibilities. When you don’t meet these responsibilities, you’ll either end up in financial distress or your card is cut off. To enjoy continued convenience, anyone with a credit card should use it properly by following the rules and spending what you can afford to pay.
Rewards & Savings
Most credit unions or providers have perks when you use their cards for shopping or paying bills. They offer big discounts and even give rewards and cashback, which you can use to pay for purchases.
If you avoid failures to pay or the mistakes we’ll discuss below, you’ll continue to save bucks and harness the convenience of using credit cards.
10 Worst Credit Card Mistakes You Should Avoid
When it comes to cards and money, people can be pretty careless. This is the reason why we need to educate the masses on credit card mistakes that they should avoid so they don't ruin their financial future.
Let’s delve into these wrong moves surrounding credit cards and then provide tips on what you can do to avoid making these mistakes.
1. Failing to Pay Your Bill On Time
Missing or making a late payment is by far the top worst credit card mistake you can ever make. Not paying your credit card bill on time can have serious financial implications. You can end up paying expensive late fees and ruining your credit score.
If you pay late, you may have to deal with some serious fees or the possibility of going into collections. Also, take note that the longer it takes you to catch up on delinquent payments, the more your scores drop.
So, how are you going to avoid this pitfall? It’s simple. Don't be late on your payments. If you feel you will forget the due date, it's best to set up reminders or sign up for automatic payments. When you’re on time, your credit score gets a boost!
2. Paying Only the Minimum Amount Due
It goes without saying that you should make at least the minimum payment to avoid making mistakes. Minimum payments are great for paying off your credit cards; however, if you ever notice that your balance is only going up each month and not down, it may be time to reconsider your strategy.
Making only minimum payments means not paying off the full balance on your credit card, which will cause you to rack up interest.
If your budget can’t allow you to pay full on the due date, try to consider paying as much as the minimum or try to pay in full each time. Also, you can choose to pay a big purchase weekly until you pay your balance completely.
By doing this, you'll save money by avoiding interest charges. Another added benefit is that paying down your bill faster makes it possible for you to regain control of your cash flow.
3. Withdrawing Cash with Your Credit Card
Credit card providers allow you to withdraw limited amounts from ATMs. But, when you withdraw cash with a credit card, you'll be charged fees and high-interest rates that can make your bill go up.
The best way to avoid this is not to take out cash from your credit card unless it’s an emergency. Additionally, bear in mind that even small withdrawals from your credit card attract high charges.
While it may be convenient to just withdraw if you need it, the interest costs you a lot more than it’s worth.
4. Maximizing Your Credit Limit
Do you spend to the maximum limit of your credit card? If you're like most people, then you have taken advantage of your credit card and have utilized your allowed limit.
It’s surprising that providers indirectly advise users to utilize their credit card limit. But in reality, maximizing your credit limit is a big mistake because it doesn't maximize your benefit at all. Instead, it maximizes your monthly payment.
Maximizing your credit limit might make you feel like you're getting ahead. But, in reality, all it means is that you can't control your money as well as you thought. If possible, keep your credit utilization around 30%, but keep in mind that lower is better. In times that you maxed it out, the best thing to do is pay it full on time.
5. Choosing the Wrong Card
There are many credit cards on the market, but they each serve different financial goals. So, if you’re planning to apply for a credit card, it’s always wise to do your research and find the right one.
For example, if your purpose is to use the card for shopping only, then you can get a card dedicated to shopping.
Before choosing a credit card, you should first examine the specific features and benefits that are beneficial to you. It’s a financial commitment, so think it through before signing up. Some people get credit cards because they get excited about the sign-up bonus or cashback. But if you don't pay in full every month, you'll end up paying a lot more in interest.
6. Closing Your Credit Card
Have you ever wondered about simply closing your credit card to get rid of these pitfalls?
While canceling your credit card account may seem like the best option, it will hurt your credit score and leave you with a higher credit utilization ratio. Plus, it can mean that you can no longer handle paying your bill due to financial issues.
If you think that the card is too much for you, you can reevaluate your goals and request a product change. For example, you can switch to a zero annual fee card.
Another option is to leave the card open until you’re really sure of closing it. Instead of canceling, you can also choose to keep it open and barely use it. This should not hurt your credit report or credit score at all.
7. Signing Up for Multiple Cards
The right card can help you to build good credit or earn rewards that can save you money, but applying for too many cards at once will hurt your credit. One hard inquiry won’t affect your score much, but multiple inquiries create a pattern that’ll ding your credit or knock points off your credit score.
So, is one card a better option? A couple of cards is enough or apply for one card at a time. Don't rush out and get a new credit card every time you see an ad that offers a sign-up bonus.
Having many credit cards to your name may indicate financial troubles and loan companies or credit unions may take that into account in their decision.
8. Delaying to Report a Missing Card
Whether you realize you've lost your credit card or it's been stolen, reporting it as soon as possible is the best way to limit your liability for any fraudulent charges. Waiting too long to report your lost or stolen credit card could result in costly, posted transaction fees.
If this happens (including hacking), we advise you to report your credit card issues or fraud. You can also ask your provider to block your card immediately. This will further prevent the bad guy from milking your card.
9. Failing to Compare Various Card Offers
Who wouldn't want a credit card that leads to more cashback? A lot of credit unions or providers offer various perks for different cards. For instance, you can find a card that has a 0% interest rate or one that has no annual fees.
Before applying for a credit card, it’s worth finding out which offer is right for you. Compare credit cards to find the one that’s right for you, with no hidden fees and no nasty surprises.
When comparing, consider the annual fee, interest rate, promotional offers, any rewards programs, and other perks. If you’re smart enough, you can even save some bucks instead of paying extra costs.
10. Ignoring Your Credit Terms
We understand that checking or going through your credit card terms is always not a fun read. However, it’s necessary to do so. Using a credit card without knowing how your issuer will handle late payments and other situations that may arise can get you in some hot water.
That’s why it’s always better to know your credit card terms. Really understanding them will help you get the most out of your credit card, avoid fees, and make the most of your rewards and savings.
Final Words
In the end, it all comes down to your goals as a credit cardholder. There are many myths about what is and isn't important with regards to credit cards, but with a little education, you might save yourself some headaches later on.
And, as long as you make a point to avoid these common mistakes and follow a few simple best practices, you'll be on the right track to building (and maintaining) good credit.
If you want to establish your financial wealth or find the perfect card for you, 121 Financial Credit Union is welcome to help you. We understand that building financial wealth is a process, and we’re here to help you grow your assets each step of the way.
We’re more than just an ordinary bank — we’re like a close friend that you can trust to be there when you need us. Contact us now or make an appointment to start your financial journey with us!