Credit cards have become an alternative to cash for many Americans. Some credit cards even offer perks, such as rewards points towards trips, gifts, or possibly cash back. If you’re making mistakes with your credit cards, it could be costing you big money. An article on cnbc.com earlier this month reported that U.S. credit card debt hit a record $930 billion. That’s huge when you consider the amount of interest being paid on credit card debt in this country. When using credit cards, it’s important to practice smart habits. Take note as we are counting down the top 8 credit card mistakes.
8 Applying for too many credit cards
Credit card companies are great at advertising the benefits of their cards, but not so great at warning you about the pitfalls. They make it easy to apply for new cards and retailers often encourage it right at the register. Applying for too many credit cards not only increases the chances of your ending up in too much debt but can also lower your credit score.
7 Using a credit card to advance cash
This can be one of the biggest mistakes credit cardholders make. While it seems like an easy way to get cash, credit card cash advances usually have a higher interest rate than the regular credit card rate. They may also come with a hefty cash advance fee.
6 Failing to review your monthly statements
Failing to monitor your account can cause you to fall victim to credit card fraud. This is when an unauthorized person gains access to your account number and uses it to make purchases. You can catch fraud quickly by monitoring your monthly account statements and also checking your transactions online.
5 Waiting to report a lost or stolen credit card
We mentioned the danger of fraud, the longer it takes you to report a lost or stolen card, the more time a thief has to charge items on your account.
4 Maxing out your credit card
Credit utilization is another factor in determining your credit score. Your credit utilization is found by simply dividing your credit card balance(s) by your limit(s). Experts typically recommend you keep your credit utilization ratio under 30%. This is why we recommend paying your balances down each month or as quickly as possible. Strive to maintain a healthy balance.
3 Missing or being late with a payment
The article on cnbc.com that we referenced above reported that younger Americans, ages 18 to 29, have a 76% higher delinquency rate than anyone else. Late payments on credit cards not only incur fees but can also negatively impact your credit rating. If you are forgetful with credit card payments, it’s time to automate them and have the payment transferred directly from your checking account each month. If you change the amount you pay each month, then set a calendar reminder for yourself.
2 Making only the minimum payments due each month
As we mentioned above, with credit card debt hitting record numbers, paying only the minimum payment each month can cost in you the form of added interest. Carrying a high balance from month to month could be costly. Especially when you consider how high credit interest rates have risen. You should always aim to pay as much as possible each month. If you can, pay your credit card off in full each month instead of carrying a balance. Prioritizing your credit card payment over other spending can help you save on interest charges.
1 Using your credit card to pay for everything or for luxury items you just can’t afford
This is a big mistake, and we can’t stress it enough. You must always spend within your means. Credit card holders often like to chase rewards points and use their credit cards to pay for just about everything. They often overspend because of this. Although the purchases can give your rewards a boost, that might be counteracted by the added interest charges you may be paying.
Others pay for items they can’t afford because of the ease of using a credit card. It’s a big credit card mistake to ignore your debt and overspend. Always stay within your budget when making any purchase, including those made with credit cards. If you’ve gotten into the habit of overspending because of the ease of using a credit card, it’s time to get your spending under control. Overspending can lead to late or missed payments as we mentioned above.
How to avoid the credit card mistakes mentioned above
It all starts with applying for the right credit card. A low-rate card with a low or no annual fee is always best. Using a credit card from an excellent financial partner such as Choice One Community Credit Union can help you secure a more competitive interest rate. Choice One’s credit card rate is significantly lower than the national credit card rate average. In addition, a Choice One VISA card has no annual fee and no balance transfer fee.
Choice One is also offering a special limited-time 0% APR* balance transfer rate on balance transfer for 6 months with no balance transfer fee. This can be a great way to consolidate the debt from higher-rate cards. With rising interest rates, a low-rate personal loan can be another smart option for consolidating high-rate credit card debt into a fixed monthly payment. Read more helpful tips like our top 8 credit card mistakes on the Choice One blog each month.
*0% VISA Balance Transfer Rate is valid for 6 billing cycles from the date of transfer. The rate returns to the current rate at that time. Choice One’s current Platinum Visa Credit Card Rate is 8.90% APR and Classic Visa Card is 13.50% APR with No Balance Transfer or Annual Fee. Balance Transfer offer is good on any new or existing Choice One Platinum or Classic Credit Card. The 0% balance transfer rate is for balances transferred from another institution only. Transfers may not exceed the credit line a member is approved for.