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Credit cards can help you earn rewards, build credit, and spread out the cost of big purchases. But if you’re not using your card correctly, you can quickly get in over your head.
For example, missing your credit card payment can lead to late fees and interest charges. And that’s just one of the pitfalls you could encounter.
If you want to make the most of your credit card while avoiding the drawbacks, remember these tips for credit card success. Here are seven credit card mistakes you could be making and how to avoid them.
1. Paying only the minimum
Making only the minimum payment is one of the most common credit card errors — and a costly one.
While you’ll avoid late fees, you still have to pay interest on the remaining balance. The more interest you accumulate, the longer it may take to pay off your credit card. This is true at a time when card card interest rates are skyrocketing — the average rate is 20.71% as of September 2023.
A recent Bankrate survey found that 47% of credit card holders carry a balance from month to month, with an average balance of $5,947.
Let’s assume your card has an interest rate of 21%, and the minimum payment is 1% plus interest charges. If you had a balance of $5,000 and only made minimum payments, it would take you 279 months to pay off your debt, and you would pay over $8,100 in interest.
Aim to pay the full balance on your credit card each month. If that’s not possible, try to pay as much as possible. If you’re struggling to manage your credit card bills, consider a balance transfer card with a 0% introductory interest rate.
2. Maxing out your credit limit
Your credit card has a credit limit, or the maximum amount you can spend. But that doesn’t mean you should spend up to that amount.
Why? When you max out your card, you’re more likely to carry a high balance, which may lead to interest charges and debt. Using a lot of your credit limit can also hurt your credit score.
“By maxing out your credit limit, you send a signal to creditors that you might be over-relying on credit, which can negatively impact your credit score,” says John Owens, executive vice president at Monterey Financial.
A lower credit score can make it more difficult to get approved for loans or credit in the future.
Plus, when you use a lot of your credit limit, you have less available credit for emergencies. It can leave you financially vulnerable, as you won’t have a safety net to rely on if you encounter unexpected costs.
It’s best to keep your credit utilization below 30%. For example, if you have a $15,000 credit limit, keep your balance under $4,500 or even lower.
“10% is better than 30%, which is better than 50%, which is better than 70%, and so on,” says Ted Rossman, senior industry analyst at Bankrate. “People with the best credit scores often keep their credit utilization ratio below 10%.”
3. Ignoring your credit card statements
Reviewing your credit card statements may not be the most fun, but it’s an important habit to establish.
Your monthly statement provides an overview of your transactions. Reading your statement helps you identify any unauthorized charges, errors, or fraudulent activity. Plus, it can help you monitor your spending habits.
“It’s a simple yet critical step — always review your credit card statements,” says Owens. “In the hustle and bustle of daily life, it’s easy to overlook this. But by regularly checking your statements, you keep track of your spending and safeguard yourself against discrepancies. If you identify any, report them immediately to your credit card company.”
Set reminders to review your statements when they become available each month. Many card issuers allow customers to view statements online or through a mobile app.
4. Making late payments
Not paying your credit card bill on time is another common mistake — one that comes with severe consequences.
For starters, you’ll be charged a late fee, limited to $28 for the first late payment and $39 for any subsequent late payments within the next six billing cycles. You’ll also face interest charges on your remaining balance, which will accrue until you’ve paid it off.
Late payments also cause your credit score to drop. Payment history is a major factor in determining your score; just one late payment can cause your score to drop. Late payments stay on your credit report for up to seven years, affecting your finances in the long term.
Set reminders or automatic payments to ensure you never miss a payment due date. Aim to make your card payments a few days before the due date to account for potential delays or processing time.
Also, consider creating a budget to help you track your spending and stay on top of your credit card bills.
5. Not knowing your card’s interest rate
A recent Bankrate survey found that 43% of cardholders don’t know their cards’ interest rates.
This can be a costly oversight, as your card’s interest rate determines your charges if you don’t pay your bill in full each month.
Interest can impact the total amount you owe, the time it takes to repay your debt, and your required monthly minimum payment.
If you’re carrying a balance, not knowing your interest rate can make it difficult to budget and plan for repayment.
Knowing your card’s interest rate also helps you compare it with other cards on the market.
“Interest rates aren’t as fun as rewards, so it’s tempting to focus more on the card rewards than on the interest rates you pay,” says Christopher Fred, head of U.S. credit cards and unsecured lending for TD Bank. “This can be dangerous if you carry a balance on the card. If you miss a payment without knowing your card’s interest rate, you might face a bigger sticker shock than anticipated.”
Your card’s statement should include details about your interest rate — take the time to review it. If you’re unsure how your card’s interest rate stacks up, compare it with other card offers available. This will help you determine if you can find a card with a lower interest rate or better terms.
6. Applying for too many cards at once
With so many credit card rewards and welcome bonuses out there, it may be tempting to apply to as many cards as possible.
But each time you apply for a new credit card, the issuer will perform a hard inquiry on your credit report. These inquiries remain on your credit report for up to two years and can negatively (but temporarily) impact your credit score.
“When you apply for too many cards at once, some lenders may interpret this as a signal of possible risky activity and deny credit,” says Fred. “Also, if you’re approved for multiple cards at the same time, there’s the potential of having to regularly manage different monthly bills, interest rates, and fees from different lenders.”
Instead of applying for many cards at once, stagger your applications over time. Research and compare different card options before applying. Choose cards that offer favorable terms and match your spending habits.
7. Closing old credit card accounts
While it seems logical to close an old card you’re no longer using, it may cause your score to drop.
Closing an old credit card account reduces the average age of your accounts, lowering the length of your credit history. A shorter credit history can harm your credit score.
Closing a credit card account also reduces your total available credit, which could impact your credit utilization (and your credit score).
“Instead of closing a card, you could designate that card once every few months for a small monthly purchase to keep the card active and to help you continue to build credit,” says Fred. “Another alternative is to put the credit card away in a drawer to avoid temptation.”
Another option is to call your credit card issuer and ask for a product change.
“Ask the card issuer to switch to one of its other offerings — perhaps one with a lower annual fee, a lower interest rate, or rewards better suited for your lifestyle,” says Rossman. “A product change preserves the credit line and is better for your credit score than canceling a card and opening a new one.”
The bottom line
Understanding common credit card mistakes is an important part of maximizing your card’s value. When used wisely, cards can provide valuable rewards and help support your financial goals.
But it’s also easy to lose control when you’re juggling too many cards or overlooking responsible card habits. By avoiding these mistakes, you can make the most of your credit cards without the drawbacks.
Opinions expressed are author’s alone, not those of any bank, credit card issuer, or other entity. This content has not been reviewed, approved, or otherwise endorsed by any of the entities included in the post.