CREDIT

Five Big Credit Card Mistakes

Credit cards can be a powerful tool when building your financial future, but when they are misused or mismanaged, they can create long-term financial hardships. Here are five of the biggest credit card mistakes people make and how you can avoid them.

1. Failing to Pay on Time

Late payments don’t just come with annoying fees; they can seriously damage your credit score. Payment history is the most important factor considered when calculating your credit score, and late payments can bring down your score quickly. It’s recommended to set up payment reminders or automatic transfers to help prevent missed payments when life gets busy or you’re out of your normal routine.

2. Carrying a Balance and Paying Interest

When you carry a balance on your credit card month to month, it comes with a high cost. Interest rates on credit cards are typically higher since they are considered revolving loans and not secured by collateral. The national average credit card interest rate is over 20%, according to the Federal Reserve. Paying your balance in full each month is the best way to avoid paying more than what you owe — possibly no interest at all.

3. Maxing out Your Credit Cards

Using too much for your available credit can hurt your credit score. Generally, it’s recommended to use 30% or less of your available credit. High credit utilization can send signals to lenders that you may be overextended and could make it harder to get approved for loans in the future. Try your best to keep your balances low and spread out your spending if possible.

4. Applying for Multiple Credit Cards at Once

Each time you apply for credit, a lender conducts a hard inquiry to review your credit report. Each time your credit report is reviewed, your credit score could drop a few points, and when you apply for too many credit cards in a short period of time, it could have a compounding effect on your credit score. If you want to open multiple credit cards, it’s best to space out the applications to keep your credit score in good standing.

5. Not Reading Your Statements

It’s easy to skim through or not even open your monthly credit card statement but failing to review it could lead to missed payments and or undetected fraudulent charges. Make it a habit to review your statement monthly and look for any errors or inconsistencies to protect your money. Pay extra attention to the amount of interest being paid and the timeframe shown for how long it will take to pay off if only the minimum payments are made for extra motivation to pay down debt.

Credit cards don’t have to be a source of stress; when used wisely, they can be a steppingstone to financial freedom. By avoiding these five common mistakes, you can protect your credit score, save money on interest and fees, and build healthy financial habits that will last a lifetime. Remember small things like paying on time, keeping balances low and reviewing your statements can have a big impact on your financial future. Treating your credit card as a tool will help you set yourself up for long-term success.

Sources:

https://fred.stlouisfed.org/series/TERMCBCCALLNS

(https://www.bankrate.com/credit-cards/advice/credit-card-mistakes-roundtable/#:~:text=Pekic/Getty%20Images,fees%20and%20harm%20your%20creditworthiness