Credit cards have become a convenient and everyday part of our lives. Need to pick up dinner on the way home or buy an expensive new piece of furniture? It can all go on your credit card. Additionally, how you use your credit card contributes to the many ways you can boost your credit score.
But there are downsides to having a credit card that could make you wish you never put it in your wallet. So before you get your card out again, check out these common credit card mistakes you should avoid.
Carrying a high balance
You may think that a credit card is good because you can charge things on it and then not have to worry about paying for them immediately. But carrying a high balance could work to your disadvantage.
It may hurt your credit score as one of the things lenders look at is a cardholder's credit utilization ratio, or how much of your available credit line you have already filled up.
Instead, try to get your balance down as much as possible and consider setting a goal of paying the full amount each month. If you need additional motivation, add 14% or whatever the APR is to each purchase to see how much you’re really paying when you don’t pay it off each month.
Making the minimum payment
The credit card company may tell you to pay a specified minimum each billing cycle, but you should aim to increase your credit card payments as much as possible, ideally paying your balance off in full. By making only the minimum monthly payments, you risk getting on a debt merry-go-round that is hard to get off.
Your credit card interest adds to the monthly balance, driving it higher and higher. Look at your credit card statement to see how long it will take to pay off the current balance if you only pay the minimum. That should encourage you to pay more than the minimum amount.
Maxing out your card
Cards usually have a credit line — the maximum you can spend — but you may not want to reach that goal for several reasons. It could mean that you are spending more than you can afford to pay off.
Hitting the limit may also mean you might have to open another card, which could affect your credit score and the amount of debt you’re carrying. And remember that if you reach that limit, you won’t be able to use your card for other purchases.
Pro tip: If you lack the funds to pay off your credit card debt, consider these clever ways to boost your bank account.
Canceling your card
You may think a good solution to spending less would be to cancel any extra cards in your wallet. Or perhaps you want to transfer your debt to a card with a lower APR and cut up the one you don’t need anymore. But canceling a card could have a negative effect on your credit score as it reduces your available credit and your utilization ratio.
If you no longer want to use a certain credit card, just put it away. It will stay on your credit report for 10 years. But if you want to cancel a card with an annual fee, make sure you consider the impact on your credit score before you do.
Having department store cards
If you shop at one or two stores in particular, a department store card may be a good way to get extra discounts. But it may not be a good idea if you have your wallet packed with cards from many different stores.
Retail credit cards often come with considerably high interest rates when compared to general credit cards. The application is also a hard inquiry into your credit, which may lower your credit score.
The card also may have a low credit limit that could be easy to hit if you spend regularly at that store. And canceling the card will have the same effect as canceling any credit card: Your score will go down.
Instead, consider finding one of the best rewards credit cards for your wallet, which could earn you cash rewards that may be as good over time as the department store’s card.
Missing your payment due date
The truth is, if you occasionally make a late payment with bills like utilities, rent, etc., it's usually not a big deal, but if you pay your credit card bill late, it's a different story.
You'll likely get hit with a huge late fee, penalty interest charges, and damage to your credit score. Sounds awful, right? It is. Thankfully, it's really easy to avoid missing payments. Try setting up email alerts, text reminders, and make big circles on your calendar if you have to.
Not watching your 0% APR card
A 0% APR credit card may be a good thing to have in your pocket, depending on how you use it. Maybe you need to make an expensive purchase that you plan to pay off within the 0% time frame. Or you may want to transfer other credit card balances to a 0% APR card to help you manage your debt.
But to use it to your advantage, you need to understand the fine print of your card agreement: The 0% often applies to new purchases or balance transfers for a set period, usually between six to 12 months. If you still carry a balance after the 0% period ends, you’ll have to pay the new interest rate on the remaining balance.
Never checking your statements
You might like the convenience of an auto-pay set up each month where the credit card company takes money from your bank, and you don’t have to worry about it. But when did you last do a line-by-line check of your credit card statement?
It may be a good idea to look for recurring payments on your credit card account for things you may want to cancel or to find any charges that are in error.
You also may want to make sure you have enough in your checking account to cover your bill. If funds are removed as part of your credit card auto-pay, you may have issues with paying other bills or incurring overdraft charges on your account if you aren’t paying attention.
Cosigning a card for someone else
You’ve worked hard to pay your bill each month and have a great credit score to prove it. In fact, it’s so good that you’re considering helping out a friend or family member by cosigning a credit card for them. You may think you’re doing something nice, but it could backfire.
Remember that co-signing a credit card — or any loan — makes you responsible for the balance. If your friend or family member can’t pay the bill, you will be responsible for their spending.
Not using a balance transfer card correctly
You may be excited to pick up one of the best balance transfer credit cards to help you get your debt under control. After all, balance transfer cards may have no interest rate, and you can hold off paying it for a certain period of time.
But you do have to pay it off. The card may only be interest-free for a certain period of time, and when that grace period is up, the regular card interest rate kicks in. It could make your financial situation worse. And remember that you may pay a balance transfer fee, usually around 3% of the amount you’re moving to the new card.
Pro tip: Before you move debt to a balance transfer card, put together a budget, so you have a plan to pay off the balance before the interest kicks in.
Forgetting your budget
It can be easy to simply pull out that plastic for every purchase you have to make. You can put clothes, dinners, and even vacations on your card, and the money is magically there for you. But remember that you do have to pay off that balance when the bill comes due.
Instead, create a budget and stick to it, even when you have your card available to make a purchase. Perhaps paying cash for some items may be a good alternative to help you live within your means.
Or you could use one of the best budgeting apps to keep track of the money you’re spending each day so you aren’t surprised when your next billing statement shows up.
Loaning your card to a friend
Your card is yours, and you shouldn't give it to anyone. Period. Even friends with the best intentions can sometimes drop the ball when it comes to someone else's finances.
If you need someone to make charges to your account, nearly every credit card issuer will allow you to order additional cards for authorized users at no charge. By adding them as an authorized user, you can track the charges they make to your account. Just remember — all of the charges are ultimately your responsibility, so guard your accounts responsibly.
Not choosing the right card
Some credit cards like travel credit cards or gas credit cards could be good if you travel often or have a long commute. But getting a travel credit card collecting airline miles might not be a good idea if you haven’t been on a plane in years.
Instead, research and compare credit cards before you apply to find one with the best rewards and perks that fit your particular lifestyle.
A credit card is a good way to help you pay for everyday items, special splurges, or big-ticket expenses. And with the right card, you might earn cash back or miles toward travel.
But if you don’t use it properly, a credit card can hurt your credit history, budget, and your financial future. Before you get a new credit card, research what may be best for your financial situation and lifestyle. Following the right steps, there are a number of ways you can boost your credit, tackle your credit card debt, and even earn extra money to help offset your credit spending.
It may also be useful to work out a budget to see how much you can spend on the card each month or which expenses you can make regularly. If you use it properly and avoid common mistakes, your credit card could be a good tool for managing your personal finances.