Credit cards can be a great way to build your credit history and earn rewards, but they can also be dangerous if you’re not careful.
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In this blog post, we will discuss 11 of the most common credit card mistakes and how to avoid them. By following these tips, you can protect yourself from financial disaster and keep your credit score in good shape!
Before we get started, let’s review some basics. A credit card is a loan that you can use to make purchases or withdraw cash. You are required to repay the loan, plus interest and fees, within a certain period of time.
If you don’t repay your credit card debt, it will damage your credit score and you may be required to pay additional fees. Now that we’ve reviewed the basics, let’s get started!
Mistake #1 – Not Knowing Your Credit Card Terms
One of the most common mistakes people make is not reading and understanding the terms of their credit card agreement. This document includes important information such as your interest rate, grace period, and fees.
It’s important to know these things so that you can avoid being charged unexpected fees or accruing too much debt. If you’re not sure what something means, ask your credit card issuer for clarification. You should be able to find their support number on the back of your card or on their website.
Mistake #2 – Not Keeping Track of Your Balance
Your credit card balance is the amount of money you owe to your credit card issuer. It’s important to keep track of this number so that you don’t accidentally spend more than you can afford to pay back.
You can find your balance on your monthly statement or by logging into your account online. If you’re not sure how to interpret your balance, don’t hesitate to contact customer service for help.
This is a common mistake because people tend to use their credit cards for everyday purchases and then forget to keep track of the balance. If you don’t know your balance, you could easily overspend and end up with a large bill that you can’t afford to pay.
Mistake #3 – Paying Only the Minimum Payment
Your credit card issuer will require you to make a minimum payment each month, but that doesn’t mean that’s all you should pay. Paying only the minimum can result in costly interest charges and may take years to pay off your debt. Try to pay as much as you can afford each month, even if it’s more than the minimum.
For example, let’s say you have a balance of $1000 with an 18% interest rate and your minimum payment is $25. If you only pay the minimum, 5 years and 2 months to pay off the balance. The total interest is $538.58! But if you increase your payment to $50, you can pay off the debt in 2 years and it would save you $340.77
As you can see, paying only the minimum is a mistake that can cost you a lot of money in the long run. If you can’t afford to pay more than the minimum, try to at least make your payments on time each month.
Mistake #4 – Not Making Payments on Time
Another common mistake is not making payments on time. This can damage your credit score and result in late fees. Most credit card issuers will give you a grace period of 21 days to make your payment before it’s considered late.
If you’re having trouble making your payments on time, try setting up automatic payments from your bank account. This way, you’ll never have to worry about forgetting to make a payment. You can also set up reminders on your phone or calendar. Late payments can quickly add up, so it’s important to be diligent about making them on time.
Mistake #5 – Not Knowing Your Credit Card’s Grace Period
Your credit card’s grace period is the time between when your statement closes and when your payment is due. During this time, you can avoid paying interest on your purchases if you pay off your balance in full.
However, if you don’t pay off your balance during the grace period, any new purchases will begin accruing interest immediately. For example, let’s say you have a balance of $1000 and your grace period is 21 days.
If you make a purchase of $100 on the 22nd day, you’ll be charged interest on the entire $1100 balance from the date of purchase. So it’s important to know when your grace period ends and plan accordingly.
Mistake #6 – Not Reviewing Your Statement Each Month
It’s important to review your credit card statement each month so that you can catch any errors or unauthorized charges.
You should also use this opportunity to check your spending for the month and see if you need to adjust your budget. If you find that you’re consistently overspending, you may need to consider using a different payment method or cutting back on your spending.
Credit card theft happens more often than you might think, so it’s important to be vigilant about checking your statements. If you see any charges that you don’t recognize, contact your credit card issuer immediately.
Unused subscriptions can also end up costing you more than you think. If you see a charge for a service that you no longer use, be sure to cancel it so that you’re not wasting money each month.
Mistake #7 – Applying For Too Many Credit Cards At Once
Another mistake people often make is applying for too many credit cards at once. When you do this, it can negatively impact your credit score because it looks like you’re trying to borrow a lot of money all at once.
It’s best to only apply for one or two cards every six months, and only if you need them. If you’re not sure which card to get, compare different offers and choose the one that has the lowest interest rate and fees.
Applying for credit cards can be tempting, especially if you’re offered a sign-up bonus. But it’s important to resist the urge to apply for too many cards at once. Doing so can damage your credit score and make it harder to get approved for future loans or lines of credit.
Mistake #8 – Not Understanding Your Credit Card Rewards
Many people don’t understand how their credit card rewards work, which can lead to them missing out on valuable benefits.
For example, some cards offer cash back rewards that can be used for future purchases. Others may offer points that can be redeemed for travel or merchandise.
It’s important to read the fine print so that you know how to redeem your rewards and avoid any potential fees.
Some credit card companies also offer bonus rewards for spending in certain categories, such as gas or groceries. If you know which category your card offers bonus rewards in, be sure to use it when making purchases so that you can maximize your rewards.
Mistake #9: Not Paying Attention To Your Credit Card Limit
Your credit limit is the maximum amount of money that you’re allowed to charge on your card. If you try to charge more than your limit, your transaction will be declined.
Additionally, if you consistently exceed your credit limit, it can damage your credit score. This can lead to higher interest rates and make it harder to get approved for future loans or lines of credit.
It’s important to know your credit limit so that you can avoid overspending. If you’re not sure what your credit limit is, you can usually find it on your monthly statement. if you need a higher limit, you can usually request one from your credit card issuer.
Mistake #10: Spending More Than 30% of Your Credit Card Utilization
Your credit utilization is the amount of your credit limit that you’re using. For example, if your credit limit is $1000 and you have a balance of $500, your credit utilization would be 50%.
It’s important to keep your credit utilization below 30%, as this can help improve your credit score. If you find that you’re consistently exceeding this threshold, you may need to pay down your balance or request a higher credit limit from your issuer.
It’s best to aim for a 25% credit utilization or lower. This will give you some room to stay under in case a large purchase pops up. If you have a balance that’s close to your credit limit, try to pay it down as soon as possible.
To calculate 25% credit utilization, divide your credit limit by four. So for a credit limit of $1000, you should keep your balance below $250. By doing so, you’ll position yourself for credit card success. Of course, a higher total limit would give you even more breathing room.
Mistake #11 – Not Asking For A Lower Interest Rate
If you’re carrying a balance on your credit card, you’re probably paying interest. And if you’re paying interest, that means you’re losing money.
One way to save money is to ask your credit card issuer for a lower interest rate. If you have a good payment history and credit score, they may be willing to lower your rate. To negotiate effectively, it’s important to be polite and have a solid reason for why you’re requesting a lower rate.
For example, you could say that you are struggling to make your payments or that you’re considering transferring your balance to another card with a lower interest rate. You may not always get the answer you want, but it’s always worth asking.
If you can’t receive a lower interest rate, you can also try transferring your balance to a credit card with a 0% intro APR period. This will allow you to avoid interest charges for a certain period of time, which can help you save money and pay down your balance faster.
The Most Overlooked Cause of Credit Card Debt
Credit cards are a helpful tool. They can be used for emergencies, to build credit, and to earn rewards. But if you’re not careful, they can also lead to debt.
There are many different mistakes that people make when it comes to credit cards. And while some of these mistakes may seem small, they can have a big impact on your finances. However, even if you do your best to avoid these mistakes, there’s one that can still trip you up: life.
Life happens, and it doesn’t always happen the way we want it to. You may lose your job, have a medical emergency, or face another unexpected expense. And when these things happen, it can be difficult to make your credit card payments.
If you find yourself in this situation, it’s important to contact your credit card issuer as soon as possible. They may be able to work with you to create a payment plan or modify your interest rate.
Some things are out of your control. But other common causes of credit card debt can be removed through discipline and careful planning. Reduce the psychological desire to buy more than you can afford. If you only use your credit card for things that you know you can pay off at the end of the month, you’ll be less likely to find yourself in debt.
Conclusion
Credit card mistakes can cost you money in the form of fees, interest, and damage to your credit score. By avoiding these mistakes, you can save yourself money and hassle in the long run. Credit cards are a form of borrowing, and like all borrowing, they should be used responsibly.
Start by practicing good financial habits and you’ll be on your way to credit card success. If you’ve never used a credit card before, consider getting a secured credit card to help build your credit. And if you’re already using credit cards, make sure you’re using them wisely.
A secured credit card is a good option for those with no credit or bad credit. It requires a deposit, which serves as your credit limit. This can help you build credit by using the card responsibly and making on-time payments. By practicing good financial habits, you can improve your credit score and get access to better credit products in the future.