Credit cards are often vilified for the enticing ease with which you can get them, and the high interest rates you sometimes pay. However, in some cases you really do bring your problems on yourself. While the best 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. Even the smartest among us are guilty of some of these stupid credit card mistakes.
1. Applying for lots of credit cards at once
One recipe for disaster is applying for multiple cards at the same time.
Lots of applications for credit can be a red flag and damage your credit score. Why? Opening several credit accounts in a short amount of time represents a greater risk, especially for people who don't have a lengthy credit history. Hits to your credit score 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. 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 -- not only are you responsible for the balance they run up, but your credit score could also take a plunge if the balance is enough to increase your credit utilization percentage or if they’re late paying the credit card bill.
3. 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 OK. But avoid filling your wallet with department store and retailer cards.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. Paying late
Surely everyone forgets a due date once in a while, but paying late is not only costly in the short term (late fees can be as high as $35 and you could be hit with a high penalty APR), but it can also be very costly in the long term. Take more than 30 days past the due date to pay, and your card issuer will likely report your account to one or more of the major credit bureaus. Since your payment history makes up 35 percent of your FICO credit score, a mark like that will make your credit score take a significant hit, which translates to less-than-desirable terms for loans such as mortgages, car loans and credit cards.
Avoid this scenario by taking advantage of all the technology that surrounds you. Set your smartphone with a recurring alarm, make an event on your computer calendar or consider setting up an automatic payment. Technology is fun, but it's not necessary: a paper statement, a highlighter and a fridge magnet work nicely, too.
11. 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, certain cards have made that a major part of their marketing campaigns.
12. Using the wrong card
While we’re on the subject of fees, let’s talk about what you can do to minimize the impact of fee fatigue while also getting more out of your credit card. Are you a globetrotter? Switch to a card that doesn't charge foreign transaction fees. But why stop with that feature? If you spend more time abroad than at home, find a credit card that enables you to earn miles based on your travel spending. If you’re the one doing all your family’s shopping, seek out a cash-back credit card that gives appealing rates for grocery and department store spending. Know you need to make a big purchase you won’t be able to pay off immediately? Look for cards with low introductory rates on purchases. With some basic research, you can make the switch to a card that saves you some green instead of making you see red.
13. Ignoring your rewards program
With so many credit cards on the market today, credit card issuers are working hard to get you to choose their card. Many cards offer rewards programs that, well, reward you for the money you're already spending. An industry-standard 1 percent redemption rate will typically be what you earn with your eyes closed. However, some cards can boost quarterly promotions to as high as 5 percent rebates on eligible purchases.
Credit card rewards programs are generally pretty easy to manage, whether you use your credit card only a few times a year or if you pass all your monthly spending through your credit account. Rewards programs can pay off in travel discounts, exclusive perks, statement credits or even some extra holiday shopping money. Just be sure to check if or when your points/miles expire. With just a little attention to your account details, you could be earning some considerable rewards.
14. Losing your rewards
Did you know 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 plans or holiday shopping, monitor your account so you don't accidentally lose your rewards. In some cases, rewards also expire—another good reason to keep an eye on your account.
15. 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.
16. Buying 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.
17. 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.
18. 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.
19. Sending your card with the server
After you've enjoyed a lovely meal at a nice restaurant, credit card fraud may not be the first thing on your mind. But when you hand over your credit card in that small black book and send it away with the server, you're displaying more trust than you ought to. Skimming is a popular method of stealing credit card information where your card information is scanned or copied (by hand or machine). As soon as that credit card leaves your sight, you're giving dishonest employees ample time to skim your information, run your card to pay the bill and present you with the receipt with a big smile. So, what’s your best bet? Admittedly, this one's tough. Aside from using cash, ask to be present where and when they swipe your card. Yes, it's slightly awkward and the server may not be accustomed to the question, however, credit card theft is so common that no one will begrudge you being careful.
20. Using your credit card at the ATM
Here are two words that personal-finance experts would love for you to forget: cash advance. On your credit card agreement, you'll see all sorts of different interest rates and fee amounts. One of those percentages is the high rate you'll be charged for taking cash out of an ATM with your credit card. It might seem like easy access when you need paper instead of plastic, but there's generally no grace period on cash advances, meaning you'll be charged that high interest rate starting from the moment you hit "Return card" on the screen. If you're really that hard up for cash, you're not doing yourself any favors by paying interest to get it. If you can't take it out of checking or savings, maybe you shouldn't be taking it out at all.
21. Throwing away credit card numbers
It may feel like identity theft is only something that happens to other people, but the trash from your home passes through many people's hands before landing in its permanent home. The amount of information that we throw out is more than enough to provide thieves with the opportunity to hijack our financial lives. To prevent against identity fraud, invest in a quality paper shredder and shred your credit card offers, credit card checks and statements, as well as utility statements. If an ounce of prevention is worth a pound of cure, then a shredder weighing 10 pounds is a lot of cure.
22. Giving your credit card out over the phone
Perhaps you're getting a jump on holiday shopping ordering through the Neiman Marcus Christmas Book, in which case, paying by credit card over the phone is certainly acceptable. However, many scams are conducted by unsavory individuals calling to tell you that your utilities are about to be turned off (they're not), or you're the winner of some great contest requiring a credit card (you aren't) if you'll just provide your credit card information. Thieves count on flustering you with scare tactics or exciting news to get you to provide any information they request. When in doubt, hang up and call the organization back using a phone number found on statements or the official website. A good rule of thumb: if you didn't originate the phone call, don't give out your personal information.
Gwendolyn Pearce and Miranda Marquit also contributed to this report.