Credit cards are practically essential assets to have in your personal finance plan, but they can be challenging to track. Marketing messages are presented to you in every medium. And you don’t always know which card is the best one to get or how to properly manage it.
That ends now. Here are 10 credit card mistakes to watch out for and how you can avoid the problems they present.
1. Paying an Annual Fee
Many credit card companies try to rationalize their required annual fee by touting their superb suite of benefits. Don’t fall for this come-on. In most cases, the benefits offered by the card don’t make up for the fee you pay.
If you’re having trouble qualifying for a fee-free credit card, consider a credit builder card. You can begin establishing a desirable credit history that can also open you up to more card options.
2. Not Using Automatic Payments
There’s plenty to try to remember each day — whether you’ve made your card payment shouldn’t be one of them. The majority of card issuers offer the ability to schedule automatic payments. Simply select the date you want to pay and the amount, and let the system do the work.
Usually, you’ll get a reminder that a payment is going to be deducted from your account. This alert not only reminds you, but it also gives you a chance to ensure your account balance is adequate.
3. Not Knowing Important Dates
Credit cards have two dates you need to know: your statement closing date and your payment due date. Your statement closing date ends the span of time in which your transactions are collected to create your monthly bill. Your payment date is when your minimum monthly payment is due.
On the statement closing date, you’re provided with the statement balance. You must pay that in full on or before the payment due date to avoid interest charges. Understanding these dates will keep you in good standing and can help you plan your purchases.
4. Subjecting Yourself to a Bad APR
Many cards offer an enticing introductory rate — commonly 0% interest for 12 months or more. After the introductory rate is over, the card typically converts to a 19.99% annual percentage rate (APR) or greater.
When you’re shopping for a new card, review the APR. If you already have a card, call your issuer to request a rate reduction before a significant purchase. With a good payment history, longtime account holder status, and a solid ask, you stand a good chance of success.
5. Carrying a Balance
Sometimes life happens, and you need to use your credit card to help you cover a large, unexpected purchase. That’s fine, but avoid making a habit of it. Poor spending habits today can spiral into a situation where you carry a balance each month.
Unfortunately, the price you pay to carry a balance only compounds over time. Each month that passes results in interest charges on any amount you’ve not paid from the prior statement periods. If you’re carrying a balance, try to chip away at the lingering amount over the next few months’ billing periods.
6. Using Over 30% of Your Credit Limit
Most limits are not meant to be tested, and credit limits are no different. Credit reporting bureaus prefer to see borrowers with a total revolving credit utilization lower than 30%. If you’ve got a $2,000 limit, for example, you should have no more than $600 charged to your card.
One way to stay within the limit is to make payments to your card throughout the month to lower your total credit utilization. Another is to request an increase to your credit limit. You should only do the latter, however, if you have the discipline not to likewise increase your spending.
7. Overspending When You Have a 0% Introductory Rate
Everyone loves a great introductory rate, and there’s a case for using a generous offer to self-finance certain projects. What’s less lovable is a 0% interest rate giving users a false sense of prosperity.
Remember, each swipe of the credit card is a promise to repay what was purchased. If you’re going to say yes to a purchase, make sure you can repay it before your 0% interest rate expires.
8. Adding an Unreliable Authorized User
You may be in love with your partner, but do you want their shoddy financial habits to impact yours? If you’re questioning the concept of giving a card to your honey, you already know that you shouldn’t.
An authorized user has the same rights and privileges as the primary cardholder, with none of the responsibility. If you have any concerns, maintain your financial boundaries and err on the side of keeping your and your partner’s credit separate.
9. Maxing Out Your Credit
If you’ve blasted past the 30% utilization rate, you may be in danger of maxing out your limit. The closer you get to your limit, the worse the impact is on your overall credit score.
Using up all of your available credit can also put you in a bind should an emergency arise. Keeping ample access to credit is a smart move and one you should prioritize when managing your spending. If an emergency happens and you have to pay right away, you’ll be grateful you have available credit.
10. Not Taking Advantage of the Benefits
While there are temptations associated with credit cards, it’d be a shame to skip the benefits of using plastic. Many issuers are among the quickest to monitor for and stop fraudulent purchases. This vigilance over your activity makes a credit card ideal for online transactions and travel.
Other perks include cash back, travel points, and purchase protection to valued cardmembers. Review your card membership information online and make sure you’re getting the most from your cardholder experience.
Credit cards are a great financial weapon to have in your arsenal, so long as you practice prudent card usage. When you’re fully aware of the risks associated with credit cards, you can understand how to avoid problems.
With a quality credit card in your wallet, you’re able to shop securely and enjoy the benefits it offers. And now that you know what mistakes to watch out for, you can make more informed and empowered choices.
