Credit Card Mistakes & How to Avoid Them

January 26, 2021
Having a credit card can be a great benefit to you, but when it’s used incorrectly it can cost you money. Missing a payment may result in a late fee being added to your balance. Using all of the available credit on your card can cause your credit score to drop. Getting into the habit of using your credit card correctly can help you save money and build up your credit score. Here are a few common credit card mistakes and how you can avoid them.

Carrying a balance month-to-month

One of the biggest credit score myths is that carrying a balance on your credit card instead of paying your full balance each month improves your credit score. Carrying a balance month-to-month actually hurts your credit score and can cost you additional interest.  If you carry a balance, you’ll have a higher credit utilization rate, which is the amount of debt you have compared to your available credit. To avoid this, try to pay your full balance whenever possible or pay as much as you can afford each month while trying to keep your balance as low as possible.

Making only minimum payments

Most credit card issuers will allow you to make a low, minimum payment each month. Paying only the minimum payment can significantly increase the time it takes to repay your balance and cause you to rack up unnecessary interest charges. It can add months — even years — to the time it takes you to pay off debt. Increasing your monthly credit card payment helps you pay off your balance sooner and at a lower cost. Have a payment plan in place before you take on bigger expenses, and always make consistent, on-time payments toward your balance.

Maxing out your credit card

Using a majority, or all of your available credit is never a good idea. Even with a high limit, it's still a bad idea because doing so can damage your credit score, lead to problems that can push you further into debt, make it harder to borrow money in the future, and more. Credit cards are convenient and often offer perks and discounts that aren't available when paying by cash, but be sure to avoid certain pitfalls when using a credit card. It's best to keep your credit card balance low enough that you can afford to pay it off each month. To avoid maxing out your credit card by mistake, check your balance and available credit before making a credit card purchase.

Having too many credit cards

Having too many open credit lines, even if not used, can hurt your credit score by making you look potentially risky to lenders. Having multiple active accounts can make it more challenging to control spending and keep track of payment due dates. Credit utilization beyond 30% of your credit lines and late payments can significantly lower credit scores. If you're a novice credit card user, focus on building credit history with one or two cards and paying off your entire balance each month. Adding credit cards for specific purposes such as a good rewards program or travel-related benefits can also make sense, provided they are added gradually over time rather than all at once. 

A credit card may seem like a great way to make purchases, but that little plastic card can cause a lot of damage if you're not careful. Using credit cards the right way is key to staying out of debt and protecting your credit score.

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