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Avoid These 8 Credit Card Mistakes

by Laura Adams

If you enjoy the benefits and convenience of using credit cards, don’t forget that they come with financial hazards that you should be aware of. To save money and maintain a good credit score, be sure to avoid the following 8 credit card mistakes:

Mistake #1: Having your credit limit cut

Avoid Credit Card MistakesYour credit limit can be slashed even if you pay your credit card bill on time every month—so this may not be a problem you can avoid. Having less credit generally lowers your credit score because it’s based in part on how much debt you have relative to your available credit. A lower credit score affects everything in your financial life because it makes getting credit in the future more challenging and expensive. It can also make it more difficult to rent an apartment, find a job, qualify for government benefits, and get affordable insurance rates.

Mistake #2: Letting an account go inactive

Using all your credit cards periodically is a good strategy to avoid having them canceled for inactivity and may also reduce the likelihood that your credit limit gets cut. For cards that you want to keep, make a small charge at least once every few months and pay it off in full.

Mistake #3: Exceeding your credit limit

If you agree to pay over-limit fees, your card company will process transactions that exceed your credit limit. But those fees are expensive, so be sure to monitor your balance so you never fly too close to the sun. As I mentioned in the first tip, racking up too much debt relative to your available credit will hurt your credit score. A good rule of thumb is to never charge more than 30% of your available credit. For example, if you have a $3,000 credit line, never let your account balance exceed $900 (30% of $3,000).

Mistake #4: Canceling a card

You shouldn’t have more credit cards than you really need; however, closing an account can lower your credit score. Again, this goes back to the debt-to-credit ratio issue that I previously mentioned. When you cancel an account, you immediately have less available credit relative to your existing debt. Canceling a card is especially harmful to your credit score if you’ve owned the card for many years, have used it responsibly, and have a high credit limit.

Mistake #5: Making late payments

The law generally prevents card issuers from increasing interest rates on your existing balances—except when you’re more than 60 days late making a payment. If your interest rate is hiked and you don’t want to pay a higher rate, you can cancel the account and pay off your balance under the old account terms. When you have a good track record for paying bills on time, you’ll maintain a higher credit score and reduce the likelihood that a card company will cut your credit limit.

Mistake #6: Making minimum payments only

You should always pay your credit card bill in full each month—or at least pay as much as you can. Carrying a balance from month to month doesn’t increase your credit score, it just costs you money. Even when you make a minimum payment, interest accrues each month. Your purchases could end up costing you double or triple the original price, depending on your interest rate and how long it takes you to pay off the card.

Mistake #7: Paying annual fees

There’s no reason to pay an annual fee to have a credit card, except perhaps for a rewards card. However, if you don’t use the rewards or if their real value is less than the annual fee, the benefits may not be as good as you think.

Mistake #8: Co-signing an account

If you co-sign for a credit card with someone, you are responsible for their purchases if they don’t pay or even if they die. Your credit can be positively or negatively affected by the actions of a co-signer. Instead of co-signing, having an authorized credit card user might be a better option, depending on your situation. You’re responsible for the charges made by an authorized user, but you’re in control and can set their credit limit and drop them from the account at any time.


Published or updated February 19, 2012.
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{ 5 comments… read them below or add one }

1 Donny Gamble

Letting you account go inactive is a bad feeling because you have to take it up with the credit agency if you wish to pay off your card.

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2 20 and Engaged

I didn’t know mistake #2 was possible. Looks like once I eliminate this debt, I have to use it wisely.

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3 Janet

It’s so much easier to read these articles now that my plastic is paid off. :) I still use it from month to month, though, but I’m paying it off in full. whoohoo!

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4 Charles

Great article Laura… make sure while you’re using all your credit cards for small activities (e.g.: paying for gas), you remember to check the balance and pay the bill. It’s happen to more than one of my friends, they’ll use some random credit card that’s been gathering dust to pay for a small item (to keep the activity on the card), and then forget to pay the bill since they NEVER ever log on to XYZ bank’s website to check the balance…

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5 Laura Adams

Yes, card companies don’t like too much inactivity because when you’re not charging, they’re not making money!

@Janet That is awesome that you’re done with credit card debt! When you can pay cards off in full each month they become financial tools instead of financial hazards! I love getting cash back rewards using the AmEx Blue Cash card.

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