Credit cards are a useful tool when you know how to use them properly. However, they can damage your credit and finances if you are not careful. If you want to get the most benefit from credit cards, it’s important to avoid the ten worst credit card mistakes like falling behind on your payments or using too much of your credit limit.
Here are the ten worst credit card mistakes everyone should avoid:
1. Submitting Too Many Applications
When you get a new credit card, the issuer may do a hard credit check on your credit report. Hard inquiries can damage your credit score by up to five points. So, if you submit several applications in a short period of time, you can hurt your credit score seriously. Also, when you have multiple hard inquiries on your credit report, creditors may consider you to be a high-risk borrower.
Before you apply for a credit card, it’s a good idea to research different credit cards and choose the one that offers the rewards and perks that you want to receive. Check the issuer’s requirements before applying. It’s best to only apply for credit cards for which you can prequalify.
2. Only Paying Your Minimum Payment
Although you are not required to pay your balance in full, it will be more difficult to repay your credit card debt if you only pay your minimum payment. When you only pay the required minimum, the balance you carry over to the next billing cycle will be charged with interest. These interest charges can accumulate quickly, especially if this repayment pattern becomes habitual.
If you carry a balance on your credit card for an extended period of time, you will risk maximizing your credit limit, which can hurt your credit score. To avoid this, try to pay more than the required minimum and increase your payment each month. This will help you pay off your balance more quickly, and you will also lower your interest charges.
3. Missing Payments
You will face a lot of consequences if you miss your payment due date and pay your bills late. For one thing, you will need to pay late payment fees on top of the interest charges on your unpaid balance. Your payment history makes up 35% of your credit score, so you can hurt your credit score seriously if you fall behind on your payments.
Credit card issuers report your payment history to the credit bureaus, and a missed or late payment can damage your credit report. If your account is delinquent by more than 60 days, your credit card issuer may increase your interest rate and charge a penalty annual percentage rate (APR) of 29% or higher.
4. Maxing Out Your Credit Card
The more you charge on your credit card, the more difficult it will be for you to pay off your balance, and this could lead to high finance charges. When you max out your credit limit, your credit utilization ratio will increase. This can impact your credit score negatively because 30% of your credit score is based on how much of your available credit you use. The ideal credit utilization ratio is less than 30% but greater than 0%.
When you max out your credit card, you also risk exceeding your credit limit, which could trigger an over-limit penalty. Even if you keep your balance a little below your credit limit, you could still end up over your credit limit once issuers apply finance charges to your account. This can cause lenders and creditors to consider you as a high-risk borrower when they evaluate your credit usage.
5. Misunderstanding Introductory 0% APRs
Introductory 0% APR offers have a corresponding list of terms and conditions. It’s important to understand these terms and conditions before you start using a 0% APR credit card. 0% APRs are just introductory rates, which means they only last for a limited period. It’s important to know when your 0% promotional rate ends because any unpaid balances will be charged with the card’s regular APR.
You should also know what types of transactions are eligible for the 0% APR offer. Some introductory 0% APRs only apply to purchases or balance transfers while the best apply to both. Cash advances, which is when you withdraw cash from the ATM using your credit card, are not included with 0% APR promotions. If you know all the necessary information about your 0% APR credit card, you should be able to use it properly and to your advantage.
6. Ignoring Your Credit Card Statement
If you ignore your credit card statement, you could miss important information that could affect your credit and finances. For instance, you may not know your statement period starts and ends, which will make it difficult for you to plan your credit card usage and budget for payments. Also, if you don’t review your statement, you could miss transactions that are erroneous or fraudulent.
Ignoring your credit card statement may result in not knowing when your due date is, how much your minimum payment should be, and how much credit you have already used. This information is essential if you want to maintain a good credit standing. To prevent late payments and going over your credit limit, you should review your credit card statement thoroughly every month.
7. Closing Old Credit Card Accounts
Closing an old credit card may not be a good idea, especially if you had that card for a long time. Retaining a long-term account while maintaining a good credit standing can build your credit history and improve your credit score. A better option is to leave your credit card open even if you don’t use it. Your credit card’s limit will lower your credit utilization ratio, which is an excellent way to boost your credit.
8. Forgetting to Report a Lost or Stolen Card
You may be held liable for the fraudulent transactions charged on your credit card if you fail to report a lost or stolen card. When your card is lost or stolen, you should report it to your issuer immediately to minimize the damage. If you report a loss or stolen card before any fraudulent transactions are made, you are protected against these charges and will not be held liable.
Typically, you can report a lost or stolen card through your online banking portal. If you’re having trouble, contact your issuer directly for immediate assistance.
9. Allowing Your Card to Get Charged-off
If your credit card account is 180 days delinquent, credit card issuers will charge-off your account. This means the issuer considers your account as a loss to their company. You can no longer use your charged-off credit card to make purchases, but you are still liable for your debts. The issuer, or a collection agency, will still attempt to collect your debts.
A charge-off is a negative mark on your credit report, which will remain for seven years from the date your account is charged-off. If you settle or pay the charged-off balance in full, the status on your credit report will be updated to either “settled” or “paid.” However, it will remain on your credit report for seven years before you can negotiate with the issuer to have it removed.
To prevent your account from getting charged-off, it’s essential to make at least the minimum payment on or before your monthly due date. Make sure you know your required minimum because your account can still get charged-off if your payments are less than the minimum due.
10. Making Unnecessary Purchases
One of the most common mistakes many credit card users make is using their credit card for unnecessary purchases. Many people fall into the debt trap because they lack discipline when it comes to their spending habits. To avoid this, it’s important to practice self-control when using your credit card.
Review your billing statement each month and see which purchases are not truly necessary. To avoid spending beyond your means, create a budget plan each month and indicate which types of purchases you charge on your credit card. Stick to your budget and make sure you only buy what you can afford to repay.
A credit card can be helpful and beneficial when used correctly. Credit cards offer the convenience of cashless shopping, and you also have the chance to earn rewards while spending. However, credit card mistakes can damage your credit and finances. Make sure to stay away from these ten worst credit card mistakes, such as maxing out your card or not checking your monthly statement, to avoid hurting your credit.