by Daniel | Last Updated Feb 27th, 2022
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Credit cards can be an extremely useful tool when used correctly, you can pay for a large range of things with ease, and in some cases, you can get rewarded for doing so.
But if you use a credit card incorrectly it can potentially cost you a lot of money and make your life a misery.
In this article, I’m going to talk about 9 different credit card mistakes that some people quite commonly make and how you can avoid making them.
1. Missing a Payment
Missing a payment on your credit card can really hurt your credit score, and the longer it takes to make a payment can create an even greater loss to your credit score and your bank account.
And this loss will vary depending on a variety of different factors.
On the website MyFico.com, they give an example of how much your credit score could drop by missing a payment.
Missing a payment by 30 days can see a drop of anywhere between 17 and 83 points.
And then missing a payment by 90 days can expect a drop of between 27 and 133 points.
So it’s a pretty substantial drop on your credit score.
The other problem with missing a payment is that you will probably be charged a late payment fee which can be up to $40.
Along with this, it is possible you will be put on a Penalty APR if you don’t meet the minimum payment due, which is usually very high, like 29.99% or higher.
So one way around the issue of missing a payment would be to set up autopay for your credit card, as this can take out the stress of constantly thinking about if you have made a payment or not.
And setting up a notification reminder on your phone or laptop a week before your payment is due might be advisable so you can make sure you have the available funds in your account to cover the payment due.
2. Not Using Your Credit Card
Interestingly enough if you have a credit card just sitting around not being used, it is possible the card issuer will close your account due to inactivity, and this is not a good thing as it will negatively affect your credit score as it will lower your available credit which in turn results in a higher credit utilization ratio.
Also, if you’re not keeping an eye on the statements of the unused card, it is possible that the card may be subject to fraudulent activity without you even knowing about it.
If it is possible just use the card a couple of times a year and then pay it off as soon as you can so you don’t need to worry about it.
And this will keep your account open and your credit score intact.
3. Applying For Too Many Credit Cards in a Short Amount of Time
Now it’s possible to apply for as many credit cards as you want, but applying for too many in a short period of time is not a good idea.
First of all, it will signify to credit card lenders that you pose a greater risk to them as it can be a sign that you are looking to take on a lot of debt.
Also each time you apply for a new credit card, there is usually a hard inquiry on your credit report, and this actually negatively affects your credit score temporarily and can stay on your credit report for up to 2 years.
So if you apply for too many cards too quickly, it will really put a dent in your credit score.
According to the website Bankrate.com it is advisable to wait at least 90 days before applying for a new credit card, and they recommend trying to wait 6 months if possible.
So waiting a bit longer should improve your chances of getting accepted for a new card, and it will also help to keep your credit score in check.
4. Not Understanding What Your APR and Other Fees Are
Having a deeper understanding of what the APR and other applicable fees are with your credit card is really important, as it is one of the main ways that credit card issuers make money from you.
Although it can be a lot to think about initially, if you just keep the following key terms in mind you should be a lot better off.
So, first of all, is the Annual Fee, and although this is not present on all credit cards it’s not uncommon for most decent credit cards to carry an annual fee, and usually, the more you pay for the annual fee, the more benefits, and perks you receive.
Now, this is where you need to decide if you are getting value from all of the benefits your credit card is offering versus the cost of the annual fee.
For example, If you have the American Express Platinum Card you will have an annual fee of $695, which is a fair amount of money, but you do get a whole range of benefits and perks that are worth a lot more than the annual fee.
But if you are not using the card that much and taking advantage of the points earning potential, and then you are not making use of all the benefits that are on offer, it’s quite possible you are taking a loss on the card in terms of value.
And if this is the case, it’s probably a good idea to request a downgrade a card like the Amex Gold card as its annual fee is $250, or if that’s too expensive the Amex Green Card, which is $150 a year.
Basically, it’s usually better to keep your account open as closing an active credit can negatively affect your credit score.
The next set of fees you should be aware of is the Late Payment Fees.
These can be fees that are associated with making a late payment or having a payment returned, and it’s not uncommon to be charged a fee of up to $40 for each violation, which can add up quite quickly if you’re not careful.
Another fee that is present with some credit cards is a Foreign Transaction Fee.
Now if you do travel overseas at all and want to use your credit card whilst you are on your trip, it really is important to check and see if your credit card does or doesn’t have foreign transaction fees.
If there are no fees with your card then you should be fine, as you won’t be charged anything extra.
But if there are foreign transaction fees, it’s not uncommon to be charged 3% of each purchase that you make whilst you are outside of the US, which on a $1,000 purchase is $30.
Next up is a Balance Transfer Fee which can be around $5 or anywhere between 3% and 5% depending on which amount is higher.
And a Balance transfer is usually used if you want to transfer debt from a high-interest credit card to a 0% interest credit card.
Now whilst this can save you money by doing this, it’s still worth understanding how much this might cost you, as a transfer of $5,000 at a 5% rate is $250, which is a fair amount of money.
5. Closing a Credit Card
So there can be some negative effects when you close a credit card, the first is that you will essentially be lowering your available credit, which can then affect your credit utilization ratio.
And having a high credit utilization can signal to the credit card issuer that you pose more risk than someone with a low credit utilization, as it can be a sign that you might be finding it difficult to pay your bills.
The second negative effect that can happen when closing a credit card is that it can change the length of your credit history, which is a factor used in determining your credit score.
If the annual fee is an issue for you and you don’t want to pay for it, a better option would be to ask if it is possible to downgrade to a cheaper or free version of the card you currently have, as this will keep the account active and won’t hurt your credit.
So just a recap, keeping your card active will give you more available credit which will help your credit score as it will be easier to maintain a lower credit utilization, and it will also help to maintain your credit history.
6. Carrying a balance on your credit card
Leaving a balance on your credit card for too long can negatively affect your credit score.
First of all, if you have a balance that is carried over and is more than 30% of your overall available credit, it could result in a higher than recommended credit utilization ratio which is not great.
Generally speaking, it’s best to try and keep your credit utilization ratio below 30% to avoid a negative effect on your credit score.
Also, if you don’t have a 0% APR on your credit card you will start you accrue interest, which can really add up over time if you always carry a balance.
So simply put, it is probably best to try and pay off your balance in full each month to avoid high-interest charges and negative effects on your credit score.
7. Getting a Cash Advance
Now, this is probably one of the most unadvisable things to do with your credit card.
As soon as you take out a cash advance you will start to accrue interest charges immediately, and these rates are usually really high, with the Chase Sapphire Preferred card the APR on Cash Advances is 24.99%, and that’s not all! You will also be charged a fee of either $10 or 5% on the amount of each transaction depending on whichever amount is more.
A cash advance can also become an endless cycle of increasing debt if you are not careful, so if at all possible, try to avoid getting one if you can
8. Only Paying The Minimum Balance Due
The minimum payment due on credit cards does vary a bit, but it’s not uncommon for credit card issuers to charge 1-2% of the balance owed.
So if you had a statement balance of $5,000 and the fee was 2%, the minimum payment would be $100.
Now the problem with this is that it can lead to you slowly building more and more debt, which puts you on the hook for high-interest charges on the ever-growing debt.
If you owe $10,000 on your credit card at an APR of 20%, this will cost you just over $166 a month?
Paying off your balance in full each month will allow you to maintain a good credit score and keep you out of debt.
9. Not Checking Charges Made To Your Card
Now, this is a really important part of having a credit card, as it is not uncommon for scammers to use your credit card for small or large payments without you even knowing about it.
Or it could just be a simple mistake for an order that might have been charged twice by accident.
By checking your billing statement at least once per week, you will be able to spot any of these potential charges that have been made to your card and then notify your card issuer.
And the sooner you notify them the better, as there will be more chance of you resolving the issue quickly.
Final Thoughts
So that brings us to the end of my list of common credit card mistakes, and I’d be interested to know if you have made any of them? Just let me know in the comment section below.
Now if you’re interested in learning more about how you can increase your credit limit I highly recommend reading this article here where I walk you through the steps you will need to take to make it happen.