10 Most Common Credit Cards Mistakes and Solutions

Credit cards are an aspect of everyday life, and just like everything else, they come with their fair share of complications. Learn how to avoid 10 common credit card mistakes that people make and how to avoid them.

Credit Card Mistake Hazards

Credit cards are an essential part of financial wellness. Most adults use a credit card for all aspects of their lives, and a massive problem plaguing everyone with a credit card is that it doesn’t come with an instruction manual, meaning that people are prone to making mistakes. With the average credit card debt per person upwards of $6,3541, it’s not a far-fetched idea that Americans are doing something wrong with their credit cards. Mistakes with credit cards can reflect very poorly on a person’s credit score, financial life, and several other things. Some of the most common credit card mistakes are:

A Poor Credit Score

A poor credit score is the main result of a credit card mistake. If you are not responsible for your credit, you can rest assured that your credit score will plummet. A bad credit score is anything from 300 to 499. Repairing your credit score will take time, effort, and money. While there are credit repair cards, the process is slow and grueling and requires an intense spending strategy.

Worse Insurance, Mortgage, and Credit Options

One of the most prominent downsides of having a tarnished credit score through credit card mistakes is worse options. When you have a poor credit score, insurance, mortgage, and loan options will be far worse. A good credit score is a telltale sign of trustworthiness, and a poor one reflects poorly on your trustworthiness. This means that you will have to pay deposits, higher rates, and even get outright rejected for loans if you make credit card mistakes that affect your credit score.

High-Interest Rates

If you manage to get a loan, credit card mistakes will ensure you pay far higher interest rates. Paying higher interest rates is not usually good if you require a loan.

Fewer Chances Of Getting A Job

As stated above, a good credit score reflects proper credit card management and trustworthiness. Your potential employers could check your credit score and reject you if it’s not good standing. Most employers check your credit history, current debt, and many other things before they hire you – and they’re permitted to reject you on a credit-based basis. Considering all these things, it’s clear why you’re supposed to make as few mistakes with your credit card as possible.

Why Do People Make Credit Card Mistakes?

We’ve covered why credit card mistakes can harm your financial well-being. They could prohibit you from getting a loan in the future, but they could ruin your chances of landing your dream job. With 70.2%² of all American households having a credit card, mistakes are rampant now more than ever. Keeping all this in mind, it begs the question: “Why do people make credit card mistakes in the first place? “

The simple answer is that people don’t know what they’re doing before it is too late. People don’t pay as much attention to their spending as they should, and credit cards don’t come with an instruction manual. When you get a credit card with a particular amount of purchasing power, some people get carried away and spend more money than they can afford to pay off. Some other mistakes are far less detrimental but still serve as one of the most common mistakes people make with their credit cards. Credit consultants are necessary advisors to you and your credit, yet most people don’t look for them. A large purchase is the same as multiple smaller purchases, but it reflects far less on the consumer’s peace of mind. Studies show that about 77%³ of Americans hardly ever or never actually read their credit card contracts. Furthermore, a lot of Americans:

Don’t read their credit card contracts;
Don’t seek out credit advisors;
They don’t know what their credit score is;
Don’t regularly check their balance.

These are just minor mistakes that people make when dealing with credit cards. While they aren’t likely to tarnish your credit score directly, they will reflect poorly on your credit behavior.

10 Credit Card Mistakes and the Ways to Avoid Them

Below, we list the ten most common credit card mistakes and provide solutions for each.

The most common credit card mistakes aren’t as apparent as people might think. Of course, you should never spend more than you can afford and be as responsible as possible with your credit in general. Below, we’re going to discuss a couple of the most prominent credit card mistakes, and we’re going to give you advice on how you can avoid them in full.

1. Picking the Wrong Credit Card

More often than not, people don’t pick the right credit card for their needs. There are many credit card types out there, and choosing the one that fits your needs best is always the optimal solution. Choosing the wrong one could land you in more trouble than it’s worth. Some of the most popular types of credit cards are:

Unsecured Credit Cards
Secured Credit Cards
Rewards Credit Cards
Credit Building Cards
Store-Specific Credit Cards
Credit Cards for Good Credit
No Limit Credit Cards
Bonus Credit Cards

There are many more types of credit cards, and people don’t take the time to educate themselves on what they mean. That leads them to make the wrong choice and could tarnish their credit significantly. (RELATED: Secured Credit Cards Explained)

The Solution: The solution to this issue is as simple as educating yourself on different credit card types before you get one. Properly educating yourself on the card you desire will help you determine if it’s your right choice. Seek financial advice if you’re unsure which will best suit your needs.

2. Maxing Out The Card

Maxing out your credit card can be pretty disastrous. When you have a preset credit limit, you should never use all of it at once. If you don’t pay it off until your next billing cycle, it will significantly affect your credit-to-debt ratio. It also plays a significant role in increasing your utilization rate, which is not a good idea. Maintaining a low utilization rate is synonymous with financial wellness.

The Solution: The simple solution to this issue is merely planning your spending correctly. If you don’t max out your credit card, your utilization rate will remain low, and your debt-to-credit ratio will stay functional. Make planned purchases, and don’t overuse your credit card. Check your balance frequently to ensure you’re not skating on thin ice.

3. Not Understanding Your Financial Contract

This article states that many Americans don’t even read their financial contracts. Understanding your arrangement will introduce you to your card, ensuring you’re not overstepping boundaries. Since there are many different types of cards, each contract will differ. Most Americans don’t stop at only one credit card; reading your contract and agreement every time is essential. Not doing so could be disastrous and ruin your credit score in a heartbeat. (RELATED: Credit Card Basics You Should Know)

The Solution: Read every contract concerning your credit card, including all the fine print details, and ask if you don’t understand everything. Understanding your credit card is the first step to avoiding credit card mistakes.

4. Making Minimum Payments and Deposits

You’ll always want to meet at least the minimum payments, but meeting the absolute minimum will not reflect nicely on your credit. Sticking to the minimum is never a good idea, as it could aid in racking up your debt. Overwhelming debt can be disastrous to your financial health and credit score and could land you in a troubled world. Making minimum payments on your debt could also prolong the length of your debt payoff. You’ll also end up paying more debt through additional time as you accumulate additional charges and interest rates.

The Solution: Plan your purchases before you make them. Once you have a proper debt payoff plan for your desired purchase, go for it. After you do so, try to make as many payments as you can comfortably afford, as that’s the best way to avoid prolonging the time it takes you to pay your debt off and the unnecessary charges and interest rates that come with it.

5. Neglecting Your Due Dates

Credit can be pretty overhauling, especially when in a particular debt. That is the prominent issue people face when using their credit cards. Forgetting or neglecting your due dates is terrible as it is the fastest way to ruin your credit score. Neglecting your due dates can also rack up your debt and lead to penalties and additional fees. These will only worsen your financial situation, so paying your dues on time is vital to maintaining financial wellness. (RELATED: 23 Credit Score Don’ts & Do’s)

The Solution: Always pay your dues on time. Making a plan for debt payoff is the best way to ensure you’re not missing any dates. Another way to ensure that you’re always paying your dues on time is by setting reminders. Set an alarm, write a sticky note, or simply remember when your due is and not miss it.

6. Purchasing More Than You Can Afford

People tend to overstep their boundaries and get carried away when they have a credit limit. Some take this as free money and tend to spend way more than they can afford to pay off. That is detrimental to your credit score and could land you in debt.

The Solution: Before you make any purchases, make sure that you can pay them off. Making purchases that you can’t afford is a surefire way to ruin your financial health, get yourself in debt, and significantly tarnish your credit score.

7. Not Understanding Basic Credit Terminology

As most people don’t read their credit agreements, it’s natural to assume they’re unaware of basic credit terminology. Knowing the proper terminology will ensure you know what you’re supposed to do.

The Solution: You’ll have to educate yourself on the basic credit terms. That will ensure that you’re always on top of the situation and well aware of what you’re doing with your credit card.

8. Opening and Closing New Cards

A lot of Americans regularly open new cards. The average number of credit cards per American is over two, meaning people tend to open and close their cards more than they should. Opening new credit cards isn’t going to infringe on your credit score, but eventually, closing will. When you close a credit card, your general credit history takes a hit. If you’ve had two credit cards for a preset amount of time and decide to close one, the number of years you’ve had the two is added together and then divided by the number of credit cards. This process determines your credit history length and could affect your financial health. (RELATED: 5 Situations When You Should Close Your Credit Card)

The Solution: Always close a credit card only when it stops being beneficial. If credit card payments, terms, and fees outweigh its pros, you should close it. Don’t open unnecessary credit cards, and continuously educate yourself on what you’re doing with your cards.

9. Overusing Credit Cards

People tend to overuse their credit cards for all sorts of purposes. Depending on the credit card itself, you should not use it for everyday purchases. That will rack up the debt on your credit cards and give you some issues when paying it off.

The Solution: Only use your credit cards for larger purchases. It’s better to use cash or a debit card for everyday purchases. Do not overspend on your credit card, and make sure to purchase responsibly.

10. Not Having a Clear Credit Strategy

As stated above, you should use your credit card only for larger purchases. But, when you do so, you should always employ a credit strategy. Before making a purchase, you should think about how you will pay it off. No rules are set in stone when paying credit off, but you generally want to pay it off as painlessly as possible.

The Solution: Making a credit strategy is a good idea, even if you’re not using your credit card regularly. A credit strategy will ensure you’re always on top of your credit, spending, and debt. If you’re unsure how to make your credit strategy, seek financial advice from your advisor or a helpline.

Bottom Line

Americans make mistakes on their credit cards daily – and avoiding the most common mistakes is as easy as knowing about them. After reading this article, we’re sure you’re well-educated on all the standard credit card errors and their solutions. Education is critical, and knowing is half the battle for credit.

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Sources:

Credit Card Usage and Ownership Statistics (2021 Report) – ValuePenguin
Percentage of Americans With Credit Cards – The Nest
Percentage of Americans Having Credit Cards – CreditCards