Credit cards are often vilified for the enticing ease with which you can get them, and the high interest rates you pay. However, in some cases you really do bring your problems on yourself. While credit cards can offer helpful rewards and provide you with a valuable financial tool, their misuse can end in heartache and large amounts of debt. Here are 16 of the worst credit card mistakes you can make.
1. Applying for lots of credit cards
One recipe for disaster is applying for more cards than you need. While there are some that argue that one card is more than you need, other financial experts suggest that having one or two can be useful when it comes to building a good credit score, and having something on hand to make payments with if you are in a bind and unable to access your emergency fund.
However, lots applications for credit can be a red flag and damage your credit score. This can limit your ability to get good rates on home and auto loans down the road. Instead of applying for every card you see, comparison shop for credit cards, and choose a card that is likely to suit your needs. When you get that card, use it responsibly before you consider applying for another credit card.
2. Too many department store cards
One of the subtlest items influencing your credit score is the department store credit card. These are not considered as desirable as major bank credit cards. Plus, the interest rates can be quite high, and you end up with few rewards. Even if you apply for one to get a promotional discount, it can be trouble. Paying off the account and then canceling the card can ding your credit score, since you are reducing your available credit. Carefully consider why you are getting the card, and think about how often you shop at the store. If you are a loyal customer, and the rewards are worth it, you might be okay. But avoid filling your wallet with department store and retailer cards.
3. Overlooking introductory terms
Many people apply for credit cards for the low introductory rate, and are unpleasantly surprised when it comes to an end. Read the fine print so that you know when the intro period will end, and be aware that the end of the period could mean a rather high interest rate on balances you have accrued during the intro period. If you transfer a balance for the intro rate, try to create a plan to pay off the balance before the introductory period ends. Also, realize that a late payment or going over the limit can mean an immediate end to the introductory interest rate.
4. Maxing out your credit card
Using the entire available balance on your credit card can result in a number of costly problems. Interest charges can put you over your limit, resulting in fees and a newer, much higher interest rate. Additionally, if you do not have any room on your credit card it can mean a lower credit score, since you are using up more of your available credit.
5. Not reading notices from your card issuer
It may look like junk mail, but it could actually be a notice from your credit card issuer. This could be an increase in interest rate, a change to your due date, or a change to fees for balance transfers or cash advances. If you don't read these notices, you might be surprised down the road - and unprepared for the consequences. Make sure you know what is going on with your credit card.
6. Not keeping track of credit card spending
Because it isn't coming out of your checking account, you might not feel as though it's necessary to keep track of credit card spending. However, if you are not keeping track, you might spend more than you think. Make a budget and stick with it so that you are never spending more on your credit card than you can pay off each month. Use a ledger or personal finance software to help you keep track of your purchases made with credit cards.
7. Ignoring your credit card statement
Many people do not really look at their credit card statements. This can be a mistake, though, because it could mean that you miss fraudulent charges. Take the effort to balance your statement, and compare it to your own records of transactions. If you find something that you didn't authorize, you will be able to address the problem immediately when you are top of what is happening on your credit card statement.
Another good reason to scrutinize your statement? Incremental fees for services like credit monitoring and payment protection plans can creep up on you. It’s possible you opted in to a monthly charge when you activated a new card or accepted a rewards offer over the phone. Check your statement for small charges that often get lost among all your other transactions, then call to cancel services you don't think you'll ever use.
8. Paying late
Irresponsible credit card behaviors always cost you. When your payment is late, you are charged fees. If you are close to your limit, this late payment fee can put you over the limit, resulting in another fee. And, of course, you could end up with a default interest rate as high as 29.99%. Remember that credit card issuers count the payment when it is received, and not when you send it. It is a good idea to put a payment in the mail seven to 10 days in advance to ensure that it gets there. Better yet, schedule a payment online with your credit card issuer so that your payment comes out of your checking account the day before it is due.
9. Settling for a late payment fee on your statement
Mistakes happen to everyone. However, it's still legal for card issuers to assess a significant late fee when you're behind on your bill by just one day. When this happens to you, and you're not in the habit of missing your payments, call your credit card's customer service hotline and calmly request that the fee be waived this one time. Most service agents are empowered to make that happen. In fact, the Discover it and Citi Simplicity cards have made that a major part of their marketing campaigns.
10. Co-signing someone else's credit card
The Credit CARD Act means that your children can't get credit cards without adequate income until they are 21 - unless they have a co-signer. Or you might have a friend or relative who wants you to co-sign. This is usually a big mistake, since the co-signer becomes responsible for the debt if the borrower defaults. You don't want to be on the hook for someone else's debt.
11. Making only the minimum payment
One of the biggest credit card mistakes you can make is paying only the minimum. The minimum payment is designed to seem affordable to you, while providing the credit card issuer with a longest possible amount of time for you to be making payments. If you only make the minimum payment, it will take you years to pay off your credit, and you could pay three or four times what you originally borrowed.
12. Losing your rewards points and rebates
According to the Federal Reserve Bank of Chicago, most rewards credit card customers earn about $25 in points or rebates every month. However, your bank can void your rewards balance if you miss a payment, exceed your credit limit or violate just about any rule in your agreement. If you've been using your rewards balance as a shadow savings account for travel planning or holiday shopping, monitor your account so you don't accidentally lose your rewards.
13. Paying twice for car rental insurance
At the airport rental car counter, your clerk can't wait to explain all the things that could go wrong before you head out on unfamiliar roads. Fortunately, carrying the right credit card means you can usually ignore the sales pitch for comprehensive coverage. Many credit cards cover any costs or deductibles your own insurance won't pay after a rental car accident.
14. Buying sports and concert tickets from a scalper
Don't settle for paying exorbitant ticket prices at a ticket brokerage or in the venue's parking lot. Many credit card issuers now offer exclusive pre-sale periods for concerts, sporting events and theatrical performances. Early access doesn't just mean a better selection of available tickets -- it reduces your wait time online or on the phone with ticket sellers. In fact, a handful of elite cards provide concierge services that can even handle your booking for you.
15. Paying for too much roadside assistance
Your car manufacturer, your insurance company and even your cell-phone carrier all offer monthly plans for short-range towing, jump starts and lock-outs. Before paying extra for access to these dispatch services, check your credit card's list of member benefits. Many Visa Signature and American Express cards, along with premium cards bearing the Discover and MasterCard logos, offer free or deeply discounted roadside assistance services.
16. Paying too much for big-ticket items
That gadget, outfit or piece of jewelry doesn't seem so sparkly when you see it go on sale weeks after your purchase. Instead of suffering buyer's remorse, make those purchases with a credit card that offers price protection as a cardholder benefit. For instance, cards with Citi's Price Rewind program will automatically track your registered purchases. If your retailer offers a price drop of more than $25 within about a month after your initial transaction, Citi will get you a statement credit for the difference.