Speak to any financial advisor, and they’ll tell you that credit cards can actually be incredibly handy and smart financial tools when used wisely. However, they also come with their fair share of pitfalls, and it’s easy to let small credit habits snowball into larger problems without realising it. This isn’t just a small issue–it can lead to crippling debt, which will make your financial life a nightmare. So, to prevent that from happening to you, here are some common credit card mistakes and how to avoid them.
Overspending on Credit Cards
This first point might seem obvious, but it’s incredibly important to stop overspending on your credit card. A credit card can make it feel like you’re spending imaginary money, which makes this bad habit all too common, and it could land you in serious debt. So, whenever you use your credit card, keep track of how much you’re spending, and consider using a budgeting app or spreadsheet to figure out exactly how much you can justify spending.
Paying Only the Minimum Balance
When it comes to paying off your credit card debt, you might be tempted to just pay off the minimum amount to keep things manageable. However, this will ultimately leave a hefty balance at the end of the month, which is accruing interest, so it’s probably less productive than you realise. It might hurt in the short term, but try your best to up your repayments to slowly dig yourself out of credit card debt, and you’ll definitely thank yourself later.
Ignoring Interest Rates
As we touched on with the last point, it’s very important to pay attention to your credit card’s interest rates. Not all credit cards are created equal, and ignoring the interest rate on yours could cost you. Cards with higher APRs quickly turn small balances into big headaches if left unpaid, so check your card’s terms and compare rates before applying. If your current rate is too high, consider switching to a card offering a better deal or an introductory 0% period.
Missing Payment Deadlines
Missing a credit card payment doesn’t just mean a late fee; it can also damage your credit score, which could lead to serious consequences down the line, such as being declined a mortgage. Thankfully, though, forgetting to pay on time is easily preventable with a reminder system. Set up calendar alerts or enable automatic payments for at least the minimum amount to avoid the risk of missed deadlines.
Using Credit Cards for Cash Withdrawals
It’s never a smart idea to pay for ATM withdrawals on a credit card, as this usually comes with extra fees and immediate interest charges, potentially at a higher rate than usual. Therefore, it’s generally better to use a debit card for cash withdrawals, or better still, plan ahead with cash to ensure that you have enough for the month.
Applying for Too Many Cards at Once
Yes, having multiple cards can diversify your credit profile, but applying for several in a short time raises red flags for lenders. Each application leaves a mark on your credit report, potentially lowering your score. Instead, you should space out applications and only open new accounts when you genuinely need them; otherwise, not only will your credit score suffer, but you could get yourself into unmanageable debt.
Carrying a Balance to Build Credit
Some Brits believe that carrying a balance helps boost their credit score, but this is actually a myth. Your score benefits from on-time payments and low credit utilisation, not unpaid balances. For this reason, you should clear your statement balance each month to build credit without paying unnecessary interest.
Overlooking Card Fees
Annual fees, foreign transaction charges, and late payment penalties can all sneak up on you, so keep an eye on them as they come through. If you choose to ignore these costs, it could make your card more expensive than it’s worth. Review the fee structure before signing up and decide if the perks outweigh the price; if they’re not, seek an alternative, or you’ll later regret it.
Failing to Check Statements
The easiest way to stay on top of your credit card fees and spending is to simply check your bank statements. Unfortunately, a lot of us get scared about doing this, putting it off for days, weeks, or even months. That’s a terrible idea, as this “ignorance is bliss” attitude will only cause you more problems, such as failing to realise that you’re making unnecessary payments. Seriously–no matter how scared you are to check your bank statement, the fear will never be as bad as finding out months later that you’re in unmanageable debt.
Closing Old Credit Cards
Did you know that closing an old account reduces your available credit and shortens your credit history? It might seem like the natural thing to do, but both of these scenarios can lower your credit score significantly. Ultimately, if you’re not paying an annual fee, there’s no reason to close these accounts, so consider keeping them open just to maintain your score, and who knows–they might come in handy in the future.
Ignoring Introductory Offers
When shopping around for credit cards, it would be daft not to look out for introductory offers like 0% interest plans. These might sound too good to be true, but they’re not, so they can save you a lot of money. Obviously, they don’t last forever, so make sure you don’t forget when the promotional period ends. As long as you remember this, though, you really can make use of that 0% interest without any catch.
Using Credit for Everyday Expenses
In general, it’s not a smart idea to use your credit card for daily spending. We can’t deny that this seems convenient at the time, but it will probably result in balances that you weren’t expecting. Without a budget in place, these transactions add up quickly, so reserve your credit card for larger, planned purchases and emergencies.
Not Comparing Credit Cards
As with any other purchase, it’s a big mistake to neglect to compare credit card details before signing up for one. Assuming that they’re all the same can mean missing out on better terms or rewards, so take some time to compare options. You probably already use comparison websites to find the best deal on your car insurance, and the practice will be exactly the same for credit cards.
Lending Your Card to Others
This next point should be pretty obvious–don’t lend your credit card to other people. Even trusted friends or family members may unintentionally overspend when borrowing your card, as they won’t necessarily know your budget or terms and conditions. Ultimately, you would be responsible for any charges, no matter who made them, so protect yourself by keeping your credit card private and offering to help in other ways instead.
Ignoring Reward Expiry Dates
Credit card rewards like points, cashback, or miles are a great idea to make use of–that is until they expire unused. If you’re not keeping track, you might lose out on valuable benefits, so check your rewards balance periodically and use them before they’re gone, even if it’s for smaller redemptions.
Choosing the Wrong Card for Travel
A lot of Brits fail to realise that not all credit cards are suitable for international use. Some come with hefty foreign transaction fees, while others might not be widely accepted abroad. So, before you travel, ensure your card is fee-friendly and works in your destination; that way, you can avoid a lot of potentially stressful situations.
Exceeding Your Credit Limit
Another credit card mistake that should be pretty obvious is exceeding your credit limit. Going over your credit limit could lead to hefty penalties and credit score penalties, as your credit utilisation ratio, which influences your score, rises when you max out your card. As a general rule of thumb, stay well below your limit and consider requesting a limit increase if you consistently get close to it.
Failing to Report Lost or Stolen Cards
If your credit card is lost or stolen, that’s a horrible situation to be in, but it’s your responsibility to report it immediately. Delaying a report puts you at risk of fraudulent charges, and who knows how much that could cost you. Thankfully, most providers have 24/7 support to assist with cancellations and replacements, so there’s no reason not to act swiftly.
Forgetting to Update Payment Details
When your card expires or is replaced, forgetting to update saved payment details can cause some pretty problematic service disruptions. Ultimately, this oversight will lead to missed payments or unnecessary hassle, so keep track of recurring payments and update your card information as needed.
Overlooking Cashback Opportunities
To end on a more positive note, don’t forget that most credit cards offer cashback or rewards for certain types of spending. Sadly, these perks are often ignored, which is a real shame, as they can save you a ton of money! So, familiarise yourself with your card’s reward categories and use them strategically; even small cashback amounts can add up over time if used wisely.
