Getting a credit card can signify a major step in adulthood. While you may be aware of the risks associated with mishandling credit, it is easy to forget and lose sight of sound financial habits.
Researching and being mindful of the risks of obtaining a credit card can help you better manage consumer debt and will help prevent the most common mistakes. The best way to avoid the pitfalls of credit cards is to learn all you can about your credit card, preferably before you even apply.
If you already have a credit card, here are some of the biggest credit card mistakes you can make—and how to avoid them:.
Mistake #1: Ignoring Terms and Conditions
When applying for any credit card, the application cannot be successfully submitted until the applicant accepts the card issuer’s terms and conditions. Consumers sometimes skim or avoid reading terms and conditions to speed through the application process. While they may intend to review the terms and conditions later, most people forget.
The terms and conditions contain important information about fees and arbitration as well as other pertinent information. Failure to read the fine print can lead to seemingly random charges that could have been avoided. Terms and conditions are usually lengthy and it can be difficult for consumers to decipher what everything means. If there is anything that you don’t understand, contact the card issuer for clarification.
Mistake #2: Maxing Out Your Credit Card
Depending on your credit card limit, maxing out your card can happen easily. However, it is possible to keep your balance low if you manage your finances well. Carrying a high balance can have negative financial consequences.
If you have a high balance, it can be difficult to pay off that balance in full at the end of each billing cycle. Carrying a balance from month to month will negatively impact your credit score. Although paying the minimum every month contributes positively towards your credit score, it won’t offset the negative impact of a high balance.
Mistake #3: Only Making the Minimum Monthly Payment
When money is tight, it is tempting to pay the minimum monthly payment on the credit card. However, paying the minimum is a bad call financially. Aside from introductory offers, credit cards sometimes have high interest rates, and paying the monthly minimum will prevent you from bringing your balance down quickly.
Take some time to analyze your budget and figure out the maximum amount that you can pay each month. Even just paying $20 more than the minimum payment will greatly decrease the chances of getting charged interest on a high balance.
No matter what, you never want to make a late payment, especially if your due date falls on a weekend. When the due date is on the weekend, payments typically don’t post until the next business day, resulting in a late payment and the associated fee. Making an effort to pay a few days before the due date will prevent you from having that derogatory mark on your credit history. Early payments do not affect your credit score negatively.
Mistake #4: Closing a Card You Don’t Use
While closing out a card you rarely use may seem like a good idea, doing so will likely cause your credit score to take a hit. When it comes to credit scores, the older an account is, the more it favorably affects your credit score. Having a high credit score ensures you get the best rates when making large purchases like a house or a car, or when applying for a line of credit.
When you close an older account, it is important that your other accounts, if there are any, are in good standing. Closing an account without taking that into consideration can give the appearance that your credit utilization is high when, in reality, you are financially sound. Consider making one small purchase per month on cards you don’t use much but avoid closing them out completely, if possible.
The More You Know
When you take the time to understand your credit card and manage your finances, having a credit card can afford you many opportunities throughout your life. It is all about being responsible and making sure it is the right route for you. Developing good credit habits will help reduce financial stress by getting you in the habit of making smart choices.