Credit card mistakes are common only to those who aren’t aware. So many credit card mistakes are avoidable, you just need to understand how to use your credit card wisely and sidestep these pitfalls.
Credit cards could be a great tool in your money arsenal, but you need to learn how to use them the right way so you don’t fall into the trap of the debt cycle.
As a beginner, you may not know that some mistakes can cost you thousands of dollars, lower your credit score, and cause you to live paycheck-to-paycheck.
My Credit Story and How It Evolved Over Time
I started with credit cards early. I was 18 years old, strolling through my first semester in college when I was approached for my first credit card.
Having a credit card made me feel like I finally crossed the threshold to adulthood. Even though I had no real idea of the how to use credit cards properly.
So, I did what almost every other teenager does when they’re given “free money”. I spent it on clothes, shoes, and eating out.
Just a few short months later, I maxed out my first credit card. After receiving two more credit cards in the mail, I proceeded to max them out too.
I found myself in over $3,000 of debt, which I couldn’t afford as a part-time bank teller and full-time student.
I had to learn the hard way that credit card debt was a serious thing. Bills started piling and I started to feel the stress. I didn’t know the first thing about managing my bank account enough to make my credit card payments on time.
After many years of being in debt and now being debt-free, I’ve learned from the mistakes I made and learned how to avoid them altogether.
Here are 7 common credit card mistakes and tips on how to fix them so you can increase your credit score and maintain a good standing.
Mistake#1- Making the Minimum Payment
Banks often provide the minimum payment in your bill, which can be misleading. Paying the minimum amount due only maintains your credit balance and pays essentially the interest charge to the bank. It doesn’t actually pay down your balance.
Easy Fix: Pay more than the minimum payment each month.
Paying your balance in full will avoid any interest charges. So, you’ll only pay what you charged, which will save you money and will keep your credit score high.
Mistake #2- Charging Impulse Purchases
Buying on impulse is all to common these days. You find something that grabs your attention momentarily and you charge it to your card without thinking twice.
But, this is a mistake that sets a trap for your long term debt cycle.
Buying on impulse means that this purchase was not planned. Likely, not in your budget and stealing money away from something else more important.
The instant gratification of having this item in your hands right can send you down a spiral of overspending, not having enough in your bank to cover expenses, and using your credit card to supplement payments.
You’ll find yourself in a debt cycle that only gets bigger and more difficult with time.
Easy Fix: Use your credit card for budgeted expenses, like groceries and gas.
If the expenses are already included in your budget, then it’s likely you already have the money to pay for the charges in full at the end of the month. So, you’re not adding to your debt because you’re paying it back each month.
Mistake #3: Keeping a Rolling Balance on Your Card
Having a balance that continues from one month to another will incur compound interest.
Compound interest is basically interest on top of interest. So, if you started with $100 balance on your card and your interest rate is 15%, in month 1, you will owe $115, $15 of interest.
But, in month 2, your interest charge will be 15% of the new balance of $115, which is $132.25, so month 2 charges you $17.25 in interest.
It may seem like a small price to pay, just a measly $2.25 more in month 2.
So, imagine what your interest charges would be on $1,000 or $10,000.
It adds up quickly and gradually, and before you know it, you’re behind on payments and can’t even afford the minimum payments.
Easy Fix: Pay your balance in full each month.
If you follow the easy fix in #2, you would only be charging expenses that are budgeted, so it should be easier for you to pay your balance in full.
Mistake #4: Being in Debt to Build Your Credit
This credit card mistake was one that I made when I had my first credit card. For the greater part of my early 20’s I used to think that in order for me to have a high credit score, I had to carry a debt on my card and make regular payments.
Your credit score is calculated based on several different factors:
- Payment history (35%)
- Amount owed (30%)
- Length of credit history (15%)
- New credit (10%)
- Credit mix (10%)
Amount owed is only part of the equation, and the higher the balance you carry, the more it can harm your credit score, not the opposite.
In fact, you don’t have to carry a balance at all and still maintain a good credit score. If you follow the first 3 points in this article, you’ll still have a great credit score and will not be in debt.
Easy Fix: Maintain good credit by making consistent on-time payments.
Your credit score is a historical record that reveals your credit worthiness to lenders. If you make your payments on time, you’re showing that you’re a responsible consumer.
Mistake #5: Not Reviewing your Credit Card Statements
This is a very common credit card mistake that can result in a lot of harm to you.
With identity theft so prevalent these days, you should be doing everything in your power to protect yourself from incorrect charges.
If you’re not checking your charges monthly, chances are you’ll miss signs when something is not correct on your card. And you’ll pay for that oversight with real money.
Money that you could have used for something that matters to you.
Easy Fix: Check your statements every single month before making your payment.
By reviewing your statements, you’re making sure that each charge actually belongs to you and is the correct amount.
Another benefit to checking your statement charges is reviewing how much you’re spending. You’ll be able to notice overspending issues and you’ll have the chance to adjust and correct for the following month.
So, checking your statements help you scope out bad habits and correct them before they get out of control.
Mistake #6: Using Your Credit Card for Emergencies
Let’s have some real talk.
Your credit card should never be your sole source of money for an emergency. So many people who are currently struggling with debt made the mistake of not having a proper emergency fund.
So, when emergencies came up (which they inevitably always do at one point or another) they had no other choice but to go into debt to pay for them.
This strategy is a recipe for disaster.
Easy Fix: Create a Starter Emergency Fund
You should have an emergency fund with at least $1,000, to start.
Mistake #7: Making Late Payments
I get it. Sometimes the month gets away from you or you forget that yesterday was your due date. Or maybe you’ve spent way more than expected and you can’t afford your minimum payment right now.
So, you pay your credit card payment late. And you get charged a late fee. And that late fee gets interest accrued on it. And so on and so on.
Letting your payment due dates get away from you can get out of control really fast. Late payment fees cost you money and keep you in more debt for years.
Easy Fix: Automatic Payments
Take one thing off of your to-do list by automating your payments. That way, it automatically gets paid from your bank account and you never run the risk of having a late payment again.
Credit Card Mistakes are Avoidable
It’s easy to fall into these common credit card mistakes.
But, here’s the thing, these common mistakes can be avoided.
And if you use your credit cards properly, you can actually benefit from them without getting into debt.