Consumers in the USA have just passed the $1 trillion mark in collective credit card debt. 🤯 It’s safe to say we have a financial literacy problem, and much of this debt is accrued by people making silly little avoidable credit card mistakes.
It never hurts to review the basics… So let’s go through some of these common slip-ups and how to avoid them in your life. We want you to enjoy all the benefits (and rewards!) of using credit cards, without suffering the significant potential downsides.
1. Not paying bills on time
The first and biggest mistake many folks make with credit cards is thinking that bill due dates are optional. They are absolutely NOT.
The moment your account is past due in any form (even if it’s just 50 cents) you’ll be up for some hefty penalties as well as negative marks on your credit report. Even just a minor blip in this realm can hurt you financially for many years to come.
To avoid missing due dates, always pay your bills on time! Here’s a tip: As soon as you open a new credit card, sign up for automatic bill payments. Most credit card companies offer this option as part of the sign up process. With your bills on auto-pay, if you forget to pay the balance on time manually, it’ll just happen automatically! Those funds will be auto-deducted from your checking account, keeping you current.
2. Only making minimum payments
Credit card statements and bills can be confusing (which now that I think of it, is probably by design). There are several dates, dollar amounts, and balances mentioned on statements.
The “minimum balance due” is usually highlighted and enlarged. This is what the credit card companies *want you to pay* because then they can start charging interest on the rest! The actual full statement balance shows under “new balance”.
Here’s a screenshot example of my credit card statement:
By making only the minimum payment, I would start accruing interest (compounded daily) on any remaining unpaid debts. This adds up to a HUGE amount over time.
To avoid this payment mistake and the additional interest that would come along with it, pay off your full “new balance” each month, every month. Don’t get tricked! Pay attention to the actual full amount you owe.
3. Applying for too many credit cards, too quickly
Credit cards are exciting, and each one comes with enticing and unique rewards. This makes newbie users want to sign up for as many as possible, to reap all the benefits! But doing so too rapidly will really hamper your credit score.
Every time you apply for a credit card, the issuer requests a hard pull of your credit report. And multiple hard credit enquiries may paint a picture that you are desperate for a loan and less trustworthy to lend to. It could harm your credit score, as well as cause other financial damage.
To avoid getting dinged by the major credit bureaus, wait a minimum of 3-6 months between opening new credit cards. There’s no rush!
4. Closing old credit card accounts
If you’re not using a credit card, you may as well shut it down, right? Well… this is actually one of the most common credit card mistakes because closing old accounts can also have a big impact on your credit score.
Credit history is a very important factor in determining your credit score. The longer you have credit history (I should say *good* history), the better your score will be. If you shut down old accounts, it erases that entire line of transactions and could also negatively impact your score.
We’ve written a full post about when it’s OK to close credit cards. And it includes options for what you might be able to do to keep them open instead!
Pro tip: If you’re canceling unused cards because of an annual fee, try converting that credit line to a $0 annual fee card instead.
5. Blindly paying without reviewing transactions
Tracking your spending is the cornerstone of personal finance. Yet, many people skip this all-important task and then wonder where all their money goes each month!
Double charges, fraudulent spending, accidental fees and errors could be plaguing your account if you’re not paying close attention. No matter how ugly or long your statement is, it’s really important to review all your credit card transactions. Finding any bad news early is way better than wasting money for nothing. And the good news is that it’s pretty easy to dispute those charges with your credit card company.
Good news: Free budgeting apps like Mint and Empower can help auto-track transactions across multiple credit cards. They make it super easy to categorize stuff as well as spot errors!
6. Maxing out available credit
Many people think that as long as they stay under their approved credit limit, they’re golden. But the reality is that best practices state you should never exceed 30% of your available credit limit.
This means that if you have a credit card with a $10,000 limit, you should never rack up more than $3,000 worth of outstanding charges on that card. Maxing out your available credit might suggest to creditors that you are too dependent on your credit, harming your score.
To keep your credit utilization lower, you can try two things…
- Ask for a limit raise: you could call your credit card company and ask them to increase the credit limit. This is a common practice. Don’t be surprised if they raise your limit way higher than you’ll ever need it.
- Pay the bill more frequently: you don’t have to wait until the end of the month to make a payment, you can pay your credit card account at any time to reduce your utilization ratio. Try paying twice a month in order to keep that utilization rate low!
All in all, try keeping your available credit utilization under 30%. You’ll have a healthier credit score and be more likely to get approved for better banking services like insurance products and home loans.
7. Letting miles and points expire
This is a pet peeve of mine… I know so many people that rack up miles, points, and freebies from credit card benefits and then NEVER USE them!! It’s kind of like flushing free money down the toilet!
Most credit card perks can be converted to cash, even if it’s for a smaller redemption value. It’s important for folks to know the ins and outs of their credit card benefits — that’s why we recommend a “super-chill” strategy for most folks. Simplifying your credit card points makes it way easier to keep track of.
Pro tip: Cash back cards are the simplest account types to redeem benefits. Many issuers just put the cash straight back onto your statement so you don’t have to think about it.
8. Lending your credit card to kids or family
One of the most costly credit card mistakes is handing your card out willy nilly and letting other people rack up charges. It can surprise you with unwanted bills.
If your name is on the card account, you’re on the hook for charges, no matter who swiped.
So think twice before letting people pay with cards in your name. And always keep your information secure, only authorizing users you completely trust.
9. Opening a 0% balance transfer card, then getting in worse debt
0% balance transfer cards are potentially great tools for those with outstanding cc debt balances. They allow you to transfer balances to a new card with a 0% introductory APR so you can avoid paying interest (for a little while).
But, after the 0% period ends, which is typically 12-18 months, many of these cards then enforce a much larger interest rate. This spins folks into even more debt and costs them more in overall interest. Not to mention, there are transfer fees that most people don’t account for when transferring the initial balance. And a possible dip in your credit score if opening a new card.
To avoid credit card mistakes like this, get really serious about paying off debt. If you use a 0% balance transfer card to crush debt, make sure to pay your entire debt balance before the introductory period ends!
10. Taking cash advances
Many credit card issuers allow you to pull cash out of ATMs, or sometimes transfer money from your line of credit to a checking account. And while this might seem perfectly normal, there’s actually a special set of fees for taking cash advances. And they are ridiculous!
Most cash advances have a transaction fee (usually 5% of the amount advanced), an ATM fee, as well as immediate interest accruing from that moment forward. Triple ouch!
To avoid credit card mistakes like this, never take cash advances or use your credit card at the ATM. Just carry around your debit card if you need to take cash out in a pinch. Even if it costs you a small debit ATM fee, it’s better than what your credit card company will charge you!
Oh, and those checks that your credit card company might send your way, those come with fees too. Best to shred them and toss them in the trash.
11. Running or hiding from debt problems
Last but not least, a HUGE mistake people make with credit cards is pretending that their spending issues and debt doesn’t exist. They kick the can down the road, hoping problems will just solve themself over time.
Sadly, hope is not a strategy when it comes to debt payoff. If you’re in debt, you need to make a serious debt payoff plan, and stick to it.
Here’s the good news: There are many non-profit organizations that can help with this! Our faves are MMI and NFCC – both offer credit counseling services and help create payoff plans! Some can even negotiate more favorable terms with your creditors.
The Bottom Line:
Credit cards are a part of our daily lives, and using them properly has become second nature for many money nerds. But not paying attention to how they really work leads people to make these common credit card mistakes, which negatively impacts their financial lives.
It never hurts to brush up on credit card basics, and learning how to use them is interconnected with other areas of our financial lives. Being a responsible user has amazing benefits!
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