1. Paying Only the Minimum Due
When you pay only the minimum amount due on your credit card, you carry a balance and incur interest on the remaining amount. The Consumer Financial Protection Bureau (CFPB) warns that paying only the minimum can lead to significant interest charges over time. To avoid this, aim to pay your balance in full each month, which eliminates interest charges entirely.
Sources: Consumer Financial Protection Bureau
2. Carrying a Balance Month to Month
A common myth is that carrying a balance on your credit card helps improve your credit score. The CFPB debunks this myth, stating that paying off your balance in full each month is actually best for your credit score. Carrying a balance not only incurs interest but also does not provide any credit score benefit. To maintain a healthy credit score, pay your statement balance in full and on time every month.
Sources: Consumer Financial Protection Bureau
3. Missing Payment Deadlines
Your payment history is a main driver of your credit score. The CFPB notes that occasionally paying bills late can hurt your financial health. Even a payment that is only a few days late can trigger late fees and possibly a penalty interest rate, although it may not affect your credit score until it is 30 days late. To avoid negative consequences, set up automatic payments or reminders to ensure you never miss a due date.
Sources: Consumer Financial Protection Bureau, Experian
4. Using Too Much of Your Credit Limit
Your credit utilization ratio—the amount of credit you use compared to your credit limit—is a significant factor in your credit score. Experts, including the CFPB and Experian, recommend keeping your utilization below 30%. Using more than that can signal risk and lower your score. To keep utilization low, try to pay down balances, and consider requesting a credit limit increase, but avoid increasing your spending.
Sources: Consumer Financial Protection Bureau, Experian
5. Applying for Too Many Cards at Once
When you apply for a credit card, the issuer performs a hard inquiry on your credit report, which can lower your score by a few points. Applying for multiple cards in a short period can compound this effect. The CFPB and Experian both advise against applying for too many cards at once. Space out your applications and only apply when you genuinely need a new card.
Sources: Consumer Financial Protection Bureau, Experian
Ignoring fees
Credit cards often come with various fees, such as annual fees, balance transfer fees, and foreign transaction fees. The CFPB acknowledges that these fees can add up. For example, balance transfer fees typically range from 3% to 5% of the transferred amount. Additionally, the APR (annual percentage rate) determines the interest you pay on carried balances. Before applying for a card, review its fee schedule and APR to understand the true cost.
Sources: Consumer Financial Protection Bureau
7. Redeeming Rewards Poorly
Credit card rewards can be valuable, but they can also lead to overspending. A Federal Reserve working paper finds that reward cards can encourage higher spending, especially among less financially sophisticated consumers, while more sophisticated consumers may profit. To avoid falling into this trap, treat rewards as a bonus, not a reason to spend more. Redeem rewards for statement credits, travel, or other options that fit your needs, and always pay your balance in full to avoid interest charges that outweigh the rewards.
Sources: Federal Reserve Board
8. Closing Old Cards Unnecessarily
Closing an old credit card can hurt your credit score in several ways. The CFPB and Experian explain that closing a card reduces your available credit, which can increase your credit utilization ratio. It can also shorten your credit history, especially if it's one of your oldest accounts. Unless a card has a high annual fee that you can't justify, consider keeping it open, even if you don't use it frequently.
Sources: Consumer Financial Protection Bureau, Experian
9. Falling for Balance Transfer Traps
Balance transfer offers with 0% APR can be useful for consolidating debt, but they often come with fees. The CFPB notes that balance transfer fees typically range from 3% to 5% of the transferred amount. Additionally, the 0% APR is usually temporary, and if you don't pay off the balance before the promotional period ends, you'll be charged the regular APR on the remaining balance. Always read the terms carefully and factor in the fee and the time needed to pay off the balance.
Sources: Consumer Financial Protection Bureau
10. Neglecting to Review Statements
Reviewing your credit card statements each month is essential for catching fraudulent charges, errors, and understanding your spending. Experian identifies failing to review statements as a common mistake. Without regular review, you may miss unauthorized transactions or billing errors, and you might not be fully aware of how much debt you are accumulating. Make it a habit to check your statements carefully and report any discrepancies to your card issuer.
Sources: Experian
Frequently asked questions
What is the biggest credit card mistake?
The biggest mistake is carrying a balance and paying only the minimum due, as this leads to significant interest charges over time. Payment history is a main driver of your credit score, and late payments also hurt your financial health. According to the CFPB, paying your balance in full each month is best for your credit score.
Sources: Consumer Financial Protection BureauDoes paying interest always hurt your credit score?
No, paying interest does not directly affect your credit score. Your credit score is based on factors such as payment history and credit utilization, not the amount of interest you pay. However, carrying a balance that leads to high utilization can hurt your score, and paying only the minimum can lead to more debt. The CFPB clarifies that paying off your balance in full is best for your credit score.
Sources: Consumer Financial Protection BureauHow many credit applications is too many?
There is no specific number, but each application results in a hard inquiry, which can lower your credit score by a few points. Applying for multiple cards in a short period can compound this effect. The CFPB advises being mindful of how many applications you submit, as multiple inquiries can lower your score.
Sources: Consumer Financial Protection BureauShould I close a card with an annual fee?
Closing a card with an annual fee may be necessary if the fee outweighs the benefits. However, closing a card can reduce your available credit and shorten your credit history, which may hurt your credit score. The CFPB explains that closing a card can increase your utilization and shorten your credit history. Consider whether the card's rewards or benefits justify the fee, and if you close it, ensure you don't harm your credit utilization or history.
Sources: Consumer Financial Protection Bureau, ExperianWhat happens if I miss a payment by one day?
Missing a payment by one day may not affect your credit score, but it can trigger late fees and potentially a penalty interest rate. Experian notes that late payments under 30 days may still incur fees or a rate increase. To avoid these consequences, set up automatic payments or reminders.
Sources: ExperianSources
- Credit mistakes that could be costing you money — Consumer Financial Protection Bureau
- How to find the best credit card for you — Consumer Financial Protection Bureau
- Credit score myths that might be holding you back from improving your credit — Consumer Financial Protection Bureau
- 6 tips for using your credit card this season — Consumer Financial Protection Bureau
- Who Pays For Your Rewards? Redistribution in the Credit Card Market — Federal Reserve Board
- How do I get and keep a good credit score? — Consumer Financial Protection Bureau
- 9 Mistakes to Avoid When Using a Credit Card — Experian