8 Credit Card Mistakes to Avoid at All Costs
Even if you religiously pay your bill on time, there are plenty of other credit card gaffes you might be making without realizing it. And any card mistake, no matter how small, can have steep consequences, thanks to high interest rates that can pile on debt in the blink of an eye. Make sure you avoid these common pitfalls and keep your finances under control.
1. YOU USE A CARD FOR BIG MEDICAL BILLS—OR TO GET OUT OF JAIL.
Most expenses can go on a credit card, says Liz Weston, author of Your Credit Score and a NerdWallet columnist. But there are a few no-gos, including any charge that may be coded as a cash advance, such as a money order or a bail bond, that will trigger a higher interest rate. You shouldn’t swipe if the vendor is going to pass along the several-percentage-point card fee, either—scenarios that include federal and state taxes and school tuition. Weston also cautions against charging that scary-huge medical bill, as doing so will disqualify you from income-based discounts or interest-free payment plans offered by many medical providers.
2. YOU OPEN STORE CREDIT CARDS FOR THE DISCOUNTS.
These cards often have sky-high interest rates (a J. Crew card, for example, carries a whopping 25.24 percent APR—12 percentage points higher than the best rate available for a Citi Simplicity Mastercard). Pay only the minimum each month, and you’ll soon find yourself staring at a balance that far exceeds the cost of that perfectly chic pencil skirt.
There are other problems: A store card doesn’t feel as “real” as a Capital One or Citi card, so some shoppers forget or ignore their payments altogether. And while these cards often offer rewards, they come as incentives to shop more—which can trigger overspending.
3. YOU DON'T HAVE ONE.
Lots of Millennials are wary of credit cards in the first place—and for good reason, says Matt Schulz, a senior analyst at CreditCards.com, a site dedicated to helping consumers make smart credit decisions. “If you have a credit card and handle it poorly, it can cause major problems,” he says. But that doesn’t mean you should just stick with your debit card. A credit card is the easiest way to build your credit history, according to Schulz. Lacking such a history will contribute to a low score, because lenders like to see that you have an established track record of paying loans back. Bad credit translates to higher interest rates, “which can cost you thousands of dollars over the years,” Schulz says.
4. YOU'VE NEVER SET UP AUTO-PAY.
Forget a payment, even for a day or two, and you’ll be hit with a $25 to $35 fee and an interest payment on the balance. And it quickly gets worse: If your payment becomes 30 days late, card issuers will report you to the credit bureaus. “A skipped payment can knock 100 points or more off good credit scores,” says Weston. There’s no excuse for not setting up an automatic payment from your checking account, preferably for the full balance every month.
5. YOU "SET AND FORGET" YOUR ACCOUNT ENTIRELY.
While auto-pay can be a godsend, it can also tempt you to not check your statement carefully. Tracking your purchases carefully is not only a fundamental part of budgeting, it’s also critical in this era of identity theft. Federal law requires you to dispute a fraudulent charge within 60 days of receiving the first statement that contained the mistake. If you ignore your account for months on end, you could be missing problems and losing money.
6. YOU'RE A LITTLE FUZZY ON YOUR CARD'S TERMS AND REWARDS.
We know, we know—reading the fine print sucks. But if, for example, you open a card with a zero-percent A.P.R and then don’t transfer a balance over for a few months, you likely just lost out. “There’s often a deadline, generally 60 or 90 days, under which you have to make the transfer,” says Schulz. You also have to commit to doing the math when it comes to rewards to make sure the card’s annual fee is justified. If you pay $450 for a Chase Sapphire Reserve card but don’t travel much, you’re not recouping the cost.
7. YOU CARRY A BALANCE.
Weston and Schulz agree: Your number-one job as a credit card user is to pay the balance in full every month. Contrary to popular belief, carrying a balance does not improve your credit score. In fact, the three major credit reporting agencies like to see a utilization rate of less than 30 percent of your available credit. To boost your score into "excellent" territory, you need to push that utilization percentage down into the single digits or teens, max, says Schulz.
8. YOU BURY YOUR HEAD IN THE SAND.
What happens if you do screw up? As much as you might want to pretend the card doesn’t exist, you have to ask for help—immediately, says Weston. “The worst thing the credit card company could say is no, and there may be options you don't know about, such as a payment plan if you can't handle your debt or a fee that can be offset,” she says.