Credit cards are great tools to have, but they can be dangerous if you don’t manage them correctly. Mistakes like missing payments or chasing rewards can lead to unaffordable bills and interest charges.
Thankfully, most of these mistakes are easy to avoid with some self-discipline and good financial habits. Read on to learn about the credit card mistakes you should try to avoid as a beginner.
1. Not Reading the Terms and Conditions
Credit cards can be great financial tools that can help you build credit, make purchases and earn rewards. However, they can also be a source of financial problems if not used correctly.
It's important to understand the terms and conditions of a credit card, which are outlined in the cardholder agreement. These documents typically contain crucial information about fees, APR, credit limit utilization, privacy and more.
A good way to avoid missing any important terms and conditions is to read the fine print at least once a month. If you're having trouble understanding the legalese, try reaching out to your card issuer or seeking help from a non-profit credit counseling agency. These experts can explain the jargon and help you stay on track. You can also use online resources to learn about credit card terms and conditions.
2. Using the Card for Everyday Purchases
The key to successfully using credit cards is understanding when to use them and how to control spending. Credit cards can offer benefits that debit cards do not, like rewards points, but they can also lead to debt and financial strain if used incorrectly. For example, missing a payment can have serious consequences on your credit score and paying interest fees can add up quickly. It is important to set calendar reminders or automatic payments so you can keep track of your card balance and avoid credit card mistakes like these.
It’s also important to be aware that applying for multiple credit cards in a short period of time can harm your credit score. This is because each application for a new line of credit results in a hard inquiry on your report, which can send the signal that you are desperate for money and untrustworthy to lenders.
3. Using the Card for Cash Advances
Credit cards can be a useful financial tool when used responsibly. They can help build credit, finance purchases, and even earn rewards. However, it is easy to make mistakes that can cost you money and damage your credit score.
One mistake that many people make with their credit card is using it for cash advances. This can be a costly mistake, as credit cards typically have higher interest rates for cash advances than for regular credit card purchases. Plus, cash advances don’t come with a grace period, so interest charges start immediately.
Instead of relying on your credit card for cash advances, try to save up in a savings account or borrow from friends and family. And never exceed your credit card’s limit, as this can trigger over-the-limit fees.
4. Not Making Payments on Time
Credit cards are a powerful financial tool when used responsibly. They can help you build your credit history, finance purchases and earn rewards. But they can also be dangerous if you aren’t careful. One mistake, like missing a payment or getting too in debt, can damage your credit score and limit future borrowing opportunities.
Another common credit card mistake is forgetting to pay your bill on time. This can have a big impact on your credit score and can cost you extra interest.
To avoid this, make sure you have the funds to cover the balance each month and schedule automatic payments on your credit card to ensure you never miss a payment. It’s also important to review your monthly statement for double charges, errors and fraudulent activity.
5. Not Keeping a Budget
Credit cards can be a great financial tool when used wisely. However, it’s easy to make mistakes that can cost you in the long run. These credit card mistakes can lead to debt and hurt your credit score, and they can also cost you in terms of interest charges. Luckily, by understanding these credit card mistakes, you can avoid them and make the most of your credit cards.
One of the biggest mistakes that beginners can make is chasing rewards points blindly. Remember, you should only charge what you can afford to pay off when your bill comes due. You should also make sure to review your monthly statements regularly to ensure there are no fraudulent or unrecognized charges. Also, paying your minimum balance in full each month is key to avoiding interest charges.
