Examining a credit card statement.

Common Credit Card Mistakes To Avoid

Credit cards are a great financial tool but they come with some risks. While they are great for building credit, they can do just as much to tear it down. In order to avoid the negative parts of revolving credit, here are some mistakes that you should attempt to avoid making.

Missing A Payment

With bill payment history making up roughly a third of your credit score, missing a credit card payment is a huge mistake. Moreover, it is one that can haunt you for years.

This is of course assuming that the payment is over 30 days late. Before that time, you might incur a late fee but there will be no ding on your credit. So, if you discover that you have made a late payment, pay it as soon as you can to avoid going over 30 days late.

If your payment has gone over 30 days late, make a payment to prevent it from going 60 days late. You can also call your credit card company and ask that the 30 day late pay be removed from your report. This may not work, but it is worth a try.

Avoid This Problem

To avoid missing a credit card payment, take advantage of all of the tools at your disposal. The best tool is automatic payments which will eliminate the risk of a late payment, as long as you have money in your bank account at least.

If you hate the idea of automatic payments, and many people do, use bill reminders. Text and email reminders might be annoying, but they can help protect your good credit.

Opening Up Too Many Accounts Quickly

Having a lot of available credit can be addicting, even if you do not intend to charge up your accounts. The problem is that opening up too many accounts in a short time period is a big red flag. It makes you look as if you are in financial trouble and possibly in desperate need of some quick money.

Avoid This Problem

To avoid this problem, simply do not apply for too much credit at once. Just because a retailer offers you a discount to open an account does not mean that you need to take it. Is that 5 percent off at checkout worth your credit score taking a dive?

Try to wait at least 3 months between credit card applications to minimize the impact on your score.

Not Taking Advantage Of Perks

Credit cards come with a lot of perks and not taking advantage of them is like leaving hundreds of dollars on the table. Perks may include free credit monitoring, discounts at retailers, cash back and educational resources. All things that can benefit you financially.

Avoid This Problem

To avoid missing out on credit card perks, simply do a little reading. Credit card companies are using these perks to entice you, so they list them in plain sight. Simply take some time to explore your credit card website and they should reveal themselves.

Charging Up Your Cards

Your credit card utilization makes up nearly as much of your credit rating as on time bill pay. Unfortunately, it is all too easy to charge up that plastic and that can have catastrophic results on your credit score. It is also a problem that is very hard to fix, so an ounce of prevention is definitely worth a pound of cure.

Avoid This Problem

To avoid this problem, treat your credit cards like a debit card. Never put anything on plastic that you would not or could not pay for with cash. Additionally, you should be paying off your credit cards every month. If you start carrying a balance, it can quickly grow. It is amazing how a 200 dollar balance can quickly turn into 1500 dollars or even more.

Making A Minimum Payment Only

The minimum payment is almost never enough to keep you from taking on debt. For most credit cards, a minimum payment covers mostly interest and very little principal, so it is easy to rack up a balance.

Avoid This Problem

To keep this from being a problem, try to pay off your balance each month. You can accomplish this goal by keeping your balance at a reasonable level. If paying off a card entirely is not an option, at least round up your payment to the nearest whole dollar or pay an extra $20 or $40 with each statement.

Another strategy to pay more than minimum is to make a credit card payment when you get paid, every two weeks.

Not Monitoring Your Account

Credit cards get stolen all of the time, so you need to be vigilant about checking your account balances and scrutinizing the charges. Look at your detailed statement report and make sure that all of the charges are legitimate.

Avoid This Problem

To avoid this problem, make it a point to check your account at least once a week. Look at not only the charges that have cleared, but also the pending charges. Credit card thieves often do a test charge, that will eventually drop off, to make sure that a card is valid before they sell it. Catch the test charge in your pending section and you could catch a thief before they do any damage.

Another option, if you do not use your card often, is to freeze your card. This is a service that most credit card companies now offer and it simply prevents new charges. This is not foolproof security however, especially if a thief gets access to your online account.

Paying An Annual Fee

Unless you are getting some major perks, an annual fee is just wasted money. Take a look at how much you are getting in rewards from a card and then compare it to the annual fee. If the amounts are close or you are losing money, you should consider your options.

Avoid This Problem

Closing an account with an annual fee seems like the obvious solution, but it comes with a problem. Closing an account can lower your available credit and, if it is an old account, could lower your average age of credit. These are things that can have a negative effect on your credit score.

One option to solve an annual fee dilemma is to call your credit card company and negotiate for the fee to be removed. They will often agree to do this, but the fee will be back next year, so pay attention to your statements.

Posted by
James Car

James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.