We have all made financial mistakes at some point. When it comes to credit cards, there are a significant number of pitfalls that any consumer can make. To help you avoid these, we have compiled a list of the 10 most common credit card mistakes consumers make. Hopefully, you can learn from the mistakes of others and save yourself some money!
1: Getting Too Many Credit Cards At One Time
This is a common trap. Credit card companies advertise their credit cards everywhere and continuously promote new credit cards, programs and offers. It is important, however, not to apply for too many credit cards at one time. This can create a red flag on your credit report by making you look like a risky customer. Hence, it can lower your credit score.
If a new card comes out, we never recommend closing an old account as your history and age of your accounts are a factor in your credit score. Many times, you can call your credit card issuer and request that they convert your card from one card type to another. This is all done internally, and while you may not get that new promotional offer, you will end up with the new card you wanted.
2: Getting The Wrong Type Of Card
Many consumers get a new credit card for the wrong reasons. When you need a new card, it shouldn't be an instinctive decision based on a TV commercial. Rather, you should identify why you need a new card and thoroughly research the available options to make an informed decision.
Do you need to transfer a balance from a high interest card to a card with low interest during an introductory period? Do you need a card with an ongoing low interest rate? A card for business? All of these are valid reasons to get a new card. However, it is important to research and compare offers to get the best card for your individual financial situation.
3: Making Minimum Payments
This is one of the biggest mistakes consumers make. You charge a few thousand dollars and then discover that your minimum payment is only $25 a month. It sounds attractive, but you could end up paying thousands of dollars in interest charges over the years.
Try to pay off your credit card in full each month instead of carrying a balance from one month to the next. If that is impossible, pay off as much as you can each month. Never fall into the trap of paying just the minimum amount. While it is a good idea to set extra money aside each month in your savings account, consider the fact that most savings accounts are earning a fraction of the interest that you are paying on your credit card balance. It might make more financial sense to pay off your credit card first and save that money in interest charges.
4: Failing To Review Your Statement Each Month
It is a common practice for people to receive their statement and quickly pay the bill without reviewing it. In today's world, credit card fraud is rather common. In addition, mistakes do happen and sometimes payments don't get processed properly. Make sure to carefully review your credit card statement each month to ensure all your charges are correct, authorized, and that your payments are posted on time and in the correct amount. This can save you money, and keep from damaging your credit score in the event you're a victim of identity theft.
5: Buying What You Can't Afford
You should only charge something if you can afford to pay it off in full on time when your credit card statement comes due. Otherwise, you will be paying steep interest penalties on that remaining balance. It may be tempting to buy that latest must-have item, but if you can't pay it off when the bill comes due, then financially it is not worth it to you.
6: Getting A Card For The Wrong Reasons
Many consumers are lured into applying for a credit card because of the big promises made in the ad. It could be the cash back bonus or the extra miles earned by signing up for a certain card. But don't fall victim to the creative ad campaigns. It is important to get a card for the right reasons. Decide what you need in a credit card and then go find the best one to meet those needs.
7: Impulsively Applying For A Card
Department store clerks always ask if we would like to save 10% today by applying for the store's credit card. In the big picture, saving 10% on one purchase really isn't going to amount to much, especially since retail credit cards often have very high interest rates.
It's important to spend time to research and compare credit cards from a variety of issuers anytime you apply for a new card. You should never apply for a card impulsively at a department store or based on an ad. Make sure to carefully research all the information before you apply for a new card.
8: Using Cash Advances
One of the biggest mistakes you can make with a card is taking out a cash advance on your credit card. Cash advances usually have a higher interest rate than your ongoing interest rate. In addition, it is rarely a good idea to use cash that you don't already have. It is easy to rack up hundreds, and sometimes thousands, of dollars in interest charges on cash advances. Only use them in a true emergency.
9: Exceeding Your Credit Limit
Exceeding your credit limit is a bad financial move and it can also hurt your credit score. Even using too much of your credit limit can penalize your score. One of the major factors in determining your credit score is your debt utilization ratio. Never carry a balance of more than 30% of your credit limit. Hence, if your card has a $10,000 credit limit, the most you should charge in a month is $3,000.
10: Not Reading The Fine Print
Every credit card agreement has fine print. It is extremely important to read and understand the terms and conditions of your card. It's important to know the details of the promotional interest rates or the limits on the points you can earn. These details are hard to understand and boring to read but it is where the true facts are outlined.
These 10 mistakes are made by millions of credit card consumers each year. If you are aware and careful, you may be able to avoid some of these pitfalls and save money in the process.