We all make mistakes. It’s natural to misstep, miscalculate or forget to do something important. The problem comes when you make avoidable mistakes – blunders that you should have seen coming. If everyone ahead of you trips on a crack in the sidewalk, it should be pretty easy to avoid.
It’s the same with credit cards. The most common errors are well-documented, but that won’t help if you turn a blind eye to potential consequences. If you want to be a step ahead, you need to pay attention to where everyone else is going wrong.
Here are some of the most common credit card mistakes – and how to avoid them.
Missing the 0% APR offer
Some credit cards have an intro 0% APR offer good for two to 21 months, which many people use to buy a large ticket item that they can pay off slowly without accruing interest. But don’t be fooled – these 0% offers are trickier than they appear.
If you miss a payment, the special offer can be canceled automatically, switching you to a higher interest rate. Monitor your credit payments diligently if you have a 0% offer, so you don’t miss the deal and end up paying 24% APR.
It’s great to take advantage of special offers and bonuses, but understand that credit card companies only offer these incentives because they know most people will render themselves ineligible to reap the benefits. If you’re not a historically responsible user, you may want to avoid getting cute with your credit.
Only making the minimum payments
When you make your credit card payment, you have the option to pay the minimum amount, the current balance or the amount posted on your statement. The current balance is how much you currently owe, the statement balance is how much you owe on your statement and the minimum payment is how much you have to pay to keep your account active and in good standing.
Unfortunately, if you only pay the minimum amount (usually between 1-3% of your outstanding charges), then you’ll also pay interest. Interest rates range from 13% to 25%.
Your statement will have a portion that says how long it will take you to pay off the current balance if you only make the minimum payment, and how much total interest you’ll pay. Look at that section carefully to see how much your purchases will cost if you only make the minimum payments.
Forgetting to make a payment
One of the worst mistakes you can make is forgetting to make your credit card payment. It may seem like a late payment here or there shouldn’t be a big deal, but even a few missed payments over a significant period of time can really add up.
“I like to pay all my cards off in full each month, but there have been busy times at work or hectic times with a newborn where I’ve just spaced out and didn’t make it happen,” said travel blogger Lee Huffman of Bald Thoughts. “But by having at least the minimum payment made automatically from my checking account, at least I’m not getting hit with a late fee or having my credit score lowered because of a missed payment.”
There are a couple ways to avoid this easily. The first is to set up autopay through the credit card. Shortly before the bill is due, your bank account will be automatically debited for the amount owed. You can also set up bill pay through your bank or create a calendar reminder when your statement comes out. Late fees are the biggest red flag for a creditor, so always make your payment on time.
Paying unnecessary fees
Travel and other reward credit cards often have an annual fee, ranging from $25 to $500. Sometimes the annual fee is waived for the first year for new cardholders, but often it’s not. Unlike interest or late fees, the annual fee isn’t based on your credit or if you make your payments on time. It’s just a factor of procuring that particular card.
An annual fee can be worth it if the benefits you’re getting from the card more than make up for it. For example, some airline cards provide free checked bags when you purchase a ticket with the card. If you fly often and save $25 per checked bag, then you could still be saving money even with the $95 annual fee.
If you’ve just been hit with an annual fee and realize that it’s not worth it, call the credit card company and ask to close the account. Most will be happy to refund you the annual fee.
Other fees include late fees and foreign transaction fees, which are usually 3% of the purchase. If you’re going abroad, bring a card that doesn’t charge extra when you make a purchase in a foreign currency.
Keeping a high utilization
A significant factor that affects your credit score is how much credit you’re utilizing. For example, if you have a credit limit of $5,000 on your American Express card and a $2,000 balance, you’re using 40% of your credit limit.
Lenders want to see a credit utilization ratio of 30% or less – so that $2,000 balance, while seeming like a reasonable amount, could actually hurt your credit score. Essentially, credit card companies want to know you’re doing well financially, and a high utilization makes it look like you’re struggling to fund your lifestyle without credit.
Always keep track of your credit balance and how it compares to your credit limit. If you find yourself edging closer to the 30% mark, call the credit card issuer and ask for a limit extension. If you’ve been a responsible borrower, they’ll likely honor the request. If not, you may have to cut back expenses to bring your utilization down.
Adding an authorized user
Credit cards usually let you add an authorized user on your account for free. If you’re married, your spouse can be an authorized user on your account. If you run a business, you can add employees. You can even include children, which can be great tool to help teach fiscal responsibility and how credit works.
But when you take on an authorized user, you also take responsibility for the purchases they make. This doesn’t matter if the person is careful with their credit card, but if they’re reckless with their spending, you’ll be on the hook for the balance. Do you ever shake your head when a child or teen acts recklessly? Now imagine them acting recklessly with your credit score.
Before you add an authorized user, make sure you’re ok with the possible consequences.
Failing to notice fraudulent charges
In an era where account hacks have become more common, it’s not rare to see a fraudulent charge on your account. Most of the time, you can call the credit card company to get the charges reversed, the card closed and a new one issued to you.
But if you don’t notice the fake purchases until 60 days have passed, you might be held liable and have to pay. Like most aspects of your finances, it really pays to monitor your credit on a regular basis.
Use a service like Mint or Personal Capital where you can access all your credit cards at once and check them once a week. The sooner you report the fraud, the easier it will be to get your money back.
This line of thinking can also be applied to your credit report, where inaccuracies and mistakes are common. You may have an easier time getting a negative mark removed that was never supposed to be present, but that’s only true if you notice the issue and bring it up yourself.
Opening too many credit cards
Many credit cards offer bonuses when you spend a certain amount within 90 days, and these bonuses can range from $100 in cash to 50,000 travel points. These kinds of offers are tempting, but can lead consumers to open too many accounts.
New accounts affect your credit age, which goes on your credit report. The newer your credit, the lower your score is. If a bonus is too enticing to pass up but you’re worried about your credit age, take a hard look into your future. If you don’t foresee needing a stellar credit score in the near future, you may be able to live with a lower score until you have time to build it back up. If you’re looking to buy or rent a home, start a new job or buy a car, you probably want to hold off.
Charging more than you can afford
Everyone knows that a credit card is like a temptress – it gives you access to things you wouldn’t be able to buy, but it can also lead you into debt.
The worst mistake people make with credit cards is charging more than they can afford to comfortably pay off. Interest rates average around 15% APR so those purchases can lead to debt that will take years to pay off.
The bottom line
Using a credit card well can seem difficult if you’ve been slacking the last few years, but it only takes a few months of diligent habits to start seeing a higher credit score. Figure out how you can use a credit card well. If it means canceling most of your cards or setting up autopay, do it. Whatever will make you more likely to stick to good habits is worth it.