Most adults have taken a financial wrong turn at some point in their lives, and where credit cards are concerned, there are many potential pitfalls. To help you make better decisions, we have compiled the ten most common credit card mistakes. Ideally, you can learn from others’ mistakes and create a better financial future.
1. Making Minimum Payments
One of the biggest pitfalls consumers fall into is making only the minimum payments on their card. For most people, you can charge a few thousand dollars and still have a minimum payment as low as $25 per month. While it may be tempting to pay only that small amount of your balance, if you do so, you may pay thousands of dollars in interest over the years.
2. Getting Too Many Cards at Once
Many people fall into this trap. Since credit card issuers are constantly advertising their cards and promoting new cards, programs and offers, you may be tempted to jump at every one you see. However, it is important not to apply for a lot of cards at once. It could lower your credit score, as your credit report will look as if you are desperate for credit, which makes you a risky customer.
If you do see a new card that you have to have, you will not want to close your older cards, as the age of your accounts is an important part of your credit score. If you call your credit card company, they may allow you to convert your present card to the new card. While you may not get the new cardholder promotional offer, you will likely get the new card.
3. Applying for the Wrong Card
Often, people apply for a credit card for the wrong reasons. If you do need a new credit card, do not be influenced by an Internet advertisement. Instead, determine the kind of card you need and research all of your options, so you can make an informed decision.
There are valid reasons to get a new credit card. Perhaps you need to transfer a balance from a high interest credit card to a card with a low, or zero, interest rate during the introductory period. Maybe you need a card with a permanently low interest rate. Starting a new business? It is a good idea to get a credit card to use for your company. Whatever your reason, you must research and compare credit cards to find the one that is best for you.
4. Getting a Card for the Wrong Reasons
Often, credit card ads can lure consumers into applying because the offers seem too good to pass up. Perhaps the card offers extra miles or an extra cash back bonus. However, do not fall for a flashy ad campaign. You want to get a card that will meet your individual needs, which will take some research on your part.
5. Impulsively Applying for a Card
Impulse credit card applications generally happen at the checkout. Often, the person working the register will ask you if you would like to save a certain percentage on your purchase by applying for a new card. However, in the end, the amount you will save will not add up to much, especially when you consider these store cards generally have a high interest rate.
Instead of saying yes when you’re in a hurry to leave the store, you will want to research and compare credit cards from many different issuers. Never make an impulsive decision to apply for a card at a store. You should carefully weigh all of your options before filling out an application.
6. Ignoring Your Monthly Statement
Often, people will receive their monthly statement and pay it without even really looking at the bill. However, credit card fraud is common in today’s world. Also, mistakes happen and occasionally payments will not be processed correctly. For these reasons, you will want to review your statement every month to make sure charges are correct and authorized. Verify that your payments are posted on time and in the correct amount. If a mistake has been made, report it immediately to your issuer. This will save you money and can protect your credit score if you are the victim of identity theft.
7. Using Cash Advances
If you are in desperate need of cash, it may seem tempting to get a cash advance from your credit card. This is a major mistake, though, as cash advances will carry a higher interest rate than your card’s interest rate on purchases. It is also unwise to to use cash you do not have on hand. Consumers can accumulate hundreds, sometimes thousands, of dollars in interest charges on cash advances, so you only want to use them in an absolute emergency.
8. Buying Items You Cannot Afford
You should only use your credit card to buy something when you know you can pay off the balance in full when your statement arrives. If you cannot pay off the balance each month, you will pay high interest charges on the balance. Credit cards may seem like an easy way to buy an item you desperately want, but if you cannot pay for it when the bill comes, it could spell financial disaster.
9. Exceeding Your Credit Limit
Racking up debt that exceeds your credit limit is a bad financial decision which can damage your credit score. In fact, you do not even need to exceed your limit to lower your score. Simply using too much of your available credit can damage your history, as one of the main factors in calculating your credit score is your debt utilization ratio. You do not want to charge more than 30% of your available limit. That means, if you have a credit card with a $10,000 limit, you do not want to spend more than $3,000.
10. Ignoring the Fine Print
Every credit card has terms and conditions. Sometimes, it can be difficult to read and understand this fine print, but it is important to know all of the details of your card, including the limits on the points you can earn and the details of promotional interest rates. It will not be an exciting read, but it can save you money.
Many consumers make these ten mistakes. However, if you are careful, you can avoid many of these problems, which will save you money and help your credit score.