Common Credit Card Mistakes & How to Avoid Them

Common Credit Card Mistakes & How to Avoid Them

Your credit card can be your best friend or your worst enemy depending on how you treat it. If you use your credit card like it’s an endless supply of free money, there’s a good chance that you’re already working with a significant amount of credit card debt. On the other hand, if you treat credit card with a great degree of respect and use it meaningfully, you’re likely to be managing your finances quite well.

Perks of Owning a Credit Card

Nowadays, credit card has become the most popular and common method of payment since you can complete a purchase with just one quick swipe of the card. While credit cards did not start becoming popular until the 80s, it has become so commonplace that 72% of the Americans own one credit card at the very least and three cards on the average, according to

Owning a credit card isn’t a huge deal in today’s society. With a credit card, you can…

Pay for Big Purchases Over Time

Whether you want to buy a brand new gadget, get your car repaired, or take a vacation, you can charge all these expenses on your card even if you don’t have the cash on hand to pay for them up front. You just need to remember to pay the bill on or before the due date.

Shop Without Carrying Cash

Credit cards have risen in popularity so much that pretty much every store accepts them. You don’t need to bring cash when shopping when you can just swipe your credit card.

Get Cash Back Points and Other Rewards

Credit card companies use this tactic to get more people to sign up for an account. In return, you may get points for using the credit card in your purchases which you may redeem as discounts on your future purchases or as rewards like flier miles.

Build Your Credit

Probably the most important thing that a credit card can do is help you establish credit. How you use your credit card is reflected on your credit report.

Credit use ratio and promptness of payments are just some of the most important things that affect your credit standing. By using your credit card wisely, you can build good credit and establish your creditworthiness. In other types of financing like mortgage and car loans, creditworthiness is an important benchmark. Therefore, if you use your credit card well below the limit and pay your bills on time, new financing opportunities could open for you.

Biggest Credit Card Mistakes

There’s always a catch when it comes to credit cards. Using those cards may be convenient, but they’re not always fool-proof. Here are the biggest mistakes that you’re probably making when it comes to credit cards and some tips on how to avoid them.

Ignoring Your Credit Report

Auditing over your credit report may not sound like your idea of a good time, but it’s essential if you want to keep an accurate tally of your credit activities.

Your credit report is the document that consolidates your financial activities, including your credit card activities, debts, bill payments, and important personal information. Your credit report also states bankruptcies, repossessions, and foreclosures.

As far as your credit card is concerned, your credit report will also show your card limit, credit utilization, cash advance loans from your credit card and promptness of payment. Banks, credit issuers, landlords, and even potential employers check your credit report not just to validate your identity, but also measure your creditworthiness.

Given that your credit report contains vital information about your financial history, it’s incredibly important to check your credit report regularly to ensure that every transaction is real and accurate.

Ignoring your credit report will leave you clueless of your financial standing and let you continue frivolous charges on your credit card, which may create a domino effect. You’ll find it hard to pay your bills, your credit score could suffer and you could get rejected with other financing options. You may also be a victim of identity theft without you knowing it.

Solution: Make it a habit to check your credit report at least twice a year to see that everything is accurate and in order. If you find any irregularities, report it to your credit issuer right away.

Having Too Many Credit Cards

Americans own at least 3 credit cards on average, but it wouldn’t be so surprising to find people that own 5 or more.

Having too many cards will make it more challenging for you to fully manage your finances and keep track of your spending, which will result in more debt. When you’ve maxed out one card and find yourself in financial distress, getting another card is not the best solution.

On one hand, getting another card may help improve your rate of credit utilization. It means you have more credit available. However, when credit issuers and financing institutions see that you have way too many credit cards, they think it’s a red flag that you have a financial problem.

Solution: There’s really no magical number for how many credit cards is too many, but you can gauge how many you can handle. That means you should be able to pay all of your credit card bills promptly and, ideally, in full. Don’t open another credit card when you’ve maxed out the existing ones, but don’t close your accounts as well. Take a step back to assess your overall financial situation and improve your finances by being vigilant with your spending and maximizing savings anyway you can.

Not Understanding Your Rate Terms

There’s a lot of things that a credit card holders need to know about credit accounts and all of these are written on fine print. If you don’t read the fine print and use the credit card lavishly, you will soon be facing hefty credit card charges that are probably beyond your means.

Solution: Read the fine print before signing up for a credit card and review it if you’re unsure of something. You need to understand the terms — your credit limit, when the payment is due, how much the minimum payment is, and how are charges applied. With these in mind, you will become more careful with using the credit card and more alert with payment due dates. Remember that entering a credit account legally binds you to the contract with your credit issuer. Make sure that you understand all the terms before signing up for any account.

Only Making the Minimum Payments

When you receive your monthly credit bill, you’ll see two payment options: pay the full balance or pay just the minimum amount. Say you’ve charged a brand new flat-screen TV to your card and vowed to pay the full balance come due date. But something came up and now you can only afford the minimum payment. You were able to get away with your obligation, but paying only the minimum is risky in a lot of a ways.

When you do the math, you’ll find that you will be paying more in interest than the principal amount when you opt to pay the minimum amount all the time. That means you’ll have to deal with the interest rate for months, or years, to come until you’ve covered the full amount, instead of getting over the bill by due date.

Furthermore, paying the minimum amount will result to reduction in your credit score. Paying the minimum means there’s still significant balance left in your account, affecting your rate of credit utilization and ultimately reducing your credit score.

Solution: Make your credit card payments a priority. If necessary, make the required financial adjustments so you can pay the balance in full or at least pay a huge part of the credit balance. You can get away with paying just the minimum amount in times of financial troubles, but don’t let this become a habit. If you want to improve your credit score and have the peace of mind of carrying no credit card debt, then explore all the possible means to settle your bill in full and in time.

Not Making Your Payments on Time

Owning a credit card comes with the responsibility of settling the bill as promptly as you can. If you can’t pay your cards on time, three bad things may happen simultaneously: 1). the credit issuer will penalize you with a late fee 2). Your credit score can suffer 3). The credit issuer may increase your interest rate.

What exactly happens after missing a payments depends from one credit issuer to another, so it’s always important to read the fine print. Some credit issuers report a late payment right away to credit bureaus, while others will wait for several days to a few weeks to report to see if you’re going to make the payment before the next bill comes around. Furthermore, you could lose the “promotional” benefits on your card after just one late payment, so the 0% introductory offer on your new card will instantly be voided if you don’t make your payment on time.

Even worse is when your credit score takes a hit that could go down to as much as 100 points lower, at the same time you’re hit by the late fees.

Solution: Pay your credit bill on time. You may consider automating your bill payments so that the payment is transferred from your account to the credit issuer from month to month without fail. Of course you need to make sure that you have the needed funds at the date of transfer to prevent overdraft fees. You could also set up alerts a few days before the bill is due so you don’t forget it and find ways to meet the bill if something else comes up. Lastly, pay your bills on time.

Carrying a Balance

There’s a standing myth that says you need to carry a balance on your credit card to improve credit score and show that you are an active credit card user. But experts advocate paying off the balance in full and on time, all the time.

The problem with carrying a balance is that your credit score accounts 35% of payment history. Meaning, if you have a balance left on your account, the payment history will have that documented. With that said, leaving a balance on your account is tantamount to having debt to your credit issuer, regardless of how small that balance is.

Solution: Don’t carry a balance. And in order to do so, make sure you have the necessary funds to pay for purchases charged to your account. You also need to keep purchases well within your means. Lastly, strive to pay off your credit bill in full and as much as possible. Don’t leave a balance so you don’t stay in debt for long and even improve your credit score.

Maxing Out / Going Over Your Limit

Most cards have spending limits and that should already tell you that you can’t use the credit card for every little purchase. Remember that credit bureaus measure your creditworthiness by analyzing your spending and credit card charges. Ideally, you need to keep spending within 20-30% of your credit limit because it shows you’re attempting to keep your finances under your control.

Therefore, you should only charge around $1,500 if you have a $5,000 credit limit on your card. Of course, you can max out your credit limit and still be able to make the purchase, if your credit issuer allows it, but that can also result to other costly consequences.

First of all, the credit bureaus will soon realize that you’re spending way beyond your means so they reduce your credit score. Your credit issuer may also allow you to go over the limit, but there’s also a good chance of your card getting rejected while at the store. Also, if the purchase comes through, your credit issuer may charge you a fee for that. The next time around, your credit issuer may reduce your credit limit or increase your monthly minimum payments.

Solution: It can be embarrassing for many people when their cards get rejected at the store. You simply need to be careful with your purchases so you don’t max out your limit. One caveat is to pay for daily expenses with cash and use your credit card for expenses when paying with cash is inconvenient, such as booking airfare and accommodation. Still, you have to track your expenses regularly so you can stop charging your cards when you’ve already used up the ideal utilization rate and pay the bill first before starting to charge your cards once again.

Ignoring Your Statements

Whether you’re ignoring your statements out of apathy for your finances or fear of getting confronted with debt written in fine print, this is not a smart move.

Like your credit report, your credit statement tells you a lot about your credit activities. This is where you can see the details of every transaction charged on your card. If you don’t comb through your credit statements regularly, you might miss seeing irregular charges that you didn’t make and not be able to dispute them in time. Someone might have stolen your identity and are making charges on your card and yet you still keep paying for them because you didn’t know!

Your statements are also a good source of information if you want to improve your financial management skills. You’ll see the charges on your card which you might now realize are frivolous and unreasonable. Next time, you’ll know how to be more careful with your card.

Solution: Open your credit card statements and keep them. If you’re afraid of debt, ignoring your statements will only make the problem. Instead, use the fear as motivation to conquer your debt. Also, you need to inspect your statements with a fine-tooth comb to ensure that all charges are correct, otherwise you can file for a dispute and not pay the bill until the dispute is resolved.

Not Shopping For The Best Rate

Different credit cards are unique in their own ways. One card may be useful for travel expenses, while another is great for grocery shopping because of the rewards. They also have different perks when it comes to cash back rewards, points and interest rates.

Not shopping for the best rate can be a grave mistake because you could end up with a card with expensive APR and a lot of hidden fees. Rate shopping is important under all kinds of financial circumstances, but those who are in financial bind will benefit even more. Your low credit score may limit your chances of a competitively-rated credit card, but that also doesn’t mean you should settle with the most expensive one. Comparing rates will let you see the best rates that you can qualify.

Also take note that rates “expire” after an introductory offer. If you’re offered a zero-percent promotional offer for the first 12 months of credit card use, you will begin to pay the standard rate starting the 13th month or when you violate the rules of the offer. Take note when your promo period expires.

Solution: Take the time to shop for rates. Getting a credit card is a serious financial move and you shouldn’t just settle with the first card you qualify for. Compare rates and terms before signing up.

Using Your Card Like Cash

A lot of people are guilty of this mistake, but don’t really realize or care about it. So the credit card is like cash because you use it for spending, but you must also understand you’re using cash you don’t really own. You’re just borrowing money from the credit company.

Your credit card may help you pay for almost all types of expenses, but you shouldn’t use your cards when you can pay in cash. It is unwise to use your credit card for everyday items like your morning coffee, groceries, and gas because you’ill end up paying interest on them which inflates their cost.

Solution: Use cash when shopping for everyday essentials. Except when you’re under very extreme financial conditions and you need to use your credit card to pay for these expenses. Manage your finances carefully so that grocery, utility bills, and other recurring expenses are well covered by your budget.

Taking a Cash Advance

Even when you do need cash, don’t take them off from your credit card. Typically, credit cards allow withdrawals of cash from the ATM up to a certain amount relative to your credit limit, but this is considered cash advance from your account.

Getting cash advance from your credit account can be costly and risky in a lot of ways.

First, cash advances are more expensive than regular charges on your credit card. If your interest for regular purchases is somewhere between 15-20%, interest rates for cash advances can go north of 26%.

Second, cash advances start charging their interest rates from the very first day you took the money from the ATM. Simply put, you don’t have a grace period. If your regular purchases start charging interest if you don’t pay the balance off in full on the due date, you can start counting interest rate being charged to your account almost instantly.

Still, there’s a certain percent of credit holders who use cash advance from their credit cards. Even casinos allow swiping your credit card and gambling with cash advance.

Solution: Don’t take a cash advance against your credit card for any reason. An emergency may prompt you to do so because you need the cash right away, but you need to assess your finances and create an emergency buffer so you don’t end up taking an expensive cash advance. Also consider your financial situation. If you’re taking cash advance for expenses that should otherwise be covered by your income, it is likely that you have money management problems. Inspect your finances from the bottom up to find out why you’re needing to take out a cash advance and correct the issues from there.

Letting Your Credit Card Get Charged Off

Charge off refers to the event when the IRS requires the bank to unload your debt from its assets, and in turn the bank charges you off. Just the very phrase charged off can be confusing because it might lead you to think that the debt has been canceled and you’re no longer required to pay it off.

However, a charged off is actually a negative event to your financial standing and has the potential to wreck your credit score. The charge off can occur if you’re paying less than the minimum or not paying your credit card bill at all for 6 months. The bank may turn over your account to a collection agency and report you to credit bureaus.

Worse, the label charge off can taint your credit records for seven years even if you’ve been making every effort to pay it off. Also, don’t consider getting off the debt hook because a lot of damage has already been done by the charged off. Your debt is still enforceable and you can get into a messy lawsuit for it. The best that you can do is settle your balance and let the seven-year period pass to remove the label off your credit records.

Solution: You always go back to the most basic rules, pay off your credit card bill in full as quickly as possible. There’s a lot that you need to make up for when you get charged off because of the number of missed payments plus the interest rate, so it’s better to prevent it from happening. If you do come to a point when you get charged off, don’t ignore the debt. Pay it back so your credit report will get stamped “charge off paid,” which is way better than just having the term “charged off” on it. It also helps to feed your credit records with more positive information such as timely and full payments in all your other accounts.

Closing Your Account

There are many possible reasons why you might want to close your credit card account. One, you probably have more credit cards than you can manage so you decide to remove one or two of them. Second, you don’t find the terms on your credit card very favorable any more. And third, you simply want to get rid of your credit card and simplify your financial life with cash. But whatever the reason is, you will ultimately hurt your credit score when you close your account.

Closing an account will reduce your available credit across all cards and affect your credit utilization ratio. Take note that you need to keep your credit utilization ratio low, at most 30% of all your available credit to maintain or increase your credit score. While taking out a card will reduce your debt, your credit utilization ratio will also increase among your open accounts.

Solution: If you’re firm on the decision of closing your account, you must balance the pros and cons first. If you have to cancel one card among many, choose the newer ones because the oldest cards have the most weight on your credit score. Also pay off the remaining debt on the account you intend to close and go through the process carefully. Talk to your credit issuer and tell them you want to close your account. They might advise you to keep it open even if you’re not using the card, which is also an option.


Owning a credit card has its ups and downs. A lot of people have seen success in managing their financial lives while using plastic, but there are people who struggle getting their financial life in order because of irresponsible use of credit cards.

You have to remember that getting a credit card is a serious decision with significant consequences to your credit standing. When making financial decisions like charging your credit cards, do the math. Your credit card may be the most convenient form of payment, but it also not the most practical at all times.

Also keep in mind that how you treat your credit card will be reflected on your credit score and your overall financial life. Be careful when you swipe, analyze your financial data, and correct financial issues that are keep you from moving forward. More than anything else, a credit card is merely a tool and it’s your actions and decisions that will ultimately shape your financial destiny.