Credit cards are valuable tools, but they're also misunderstood. Here's advice from someone who eats, sleeps, and breathes credit cards.
Using credit cards wisely was the cornerstone of the personal finance education I received from a very young age. In fact, it’s probably one of the chief reasons I decided to carve a career from writing about credit cards and other personal finance topics.
These days I often spend hours reviewing credit card offers, and still learn new things every once in a while. And I still see card users making fundamental mistakes in the way they manage their cards.
Here are some top mistakes some people make that I wouldn’t.
1. Paying your bills late
The golden rule of credit card use is: Always pay on time. How do I avoid paying late? First, I always demand paper statements. Getting a letter in the mail makes my payment so much more urgent than an email reminder that my statement is ready. Conversely, I always pay my bills electronically though online banking. This removes any uncertainty related to the Postal Service.
But however you choose to stay on top of your charges, do it. The only reason you should ever pay late is if you absolutely, positively can’t scrape up the money. Bruising your credit score simply because you spaced out is dumb.
2. Paying less than the balance in full
After paying on time, paying balances in full is the most important habit you can develop. Paying in full and on time avoids interest and fees while entitling you to free use of your bank’s money for up to 55 days. Not paying in full means paying interest, which translates into handing over significant amounts of money for basically nothing. This is not the road to riches.
3. Paying your bills early
Use electronic payments – not paper checks and snail mail – to dictate precisely which day money is transferred from your account to your card company’s. This maximizes the interest earned on your checking balance – admittedly a fraction of a percent these days, but still something – while closely regulating your cash flow.
4. Paying late fees
Being a credit card expert doesn’t mean I’m superhuman – I still make mistakes. When I do, I always follow up with a brief phone call to my bank to ask them to waive any fees. Guess what? I’ve never been turned down. Your credit card issuer wants to keep your business, so if you ask only occasionally, you’ll probably be successful.
5. Paying foreign transaction fees
I don’t live a life of international travel, but I do have family overseas. When I leave the country, I hate paying foreign credit card transaction fees that are often as high as 3 percent. Fortunately, there now are many cards on the market that don’t have these fees. Capital One has never charged them, while Discover and PenFed have recently announced they’re phasing them out of all cards. Also, Chase has dropped these charges on several of their high-end products that are marketed toward travelers. For more, see Foreign Transaction Costs – and 5 Other Credit Card Pet Peeves.
6. Missing out on a big sign-up bonus
Frugal people like me may not get to rack up hundreds of thousands of miles a year through credit card spending, but we can still enjoy some generous sign-up bonuses from time to time. The key is to refrain from applying for a new card until you’re assured you’re getting the best sign-up bonus you can. Sometimes it is a matter of choosing the right Web link to apply from, while other times it’s just a matter of waiting for the best offers to emerge. For more, see The 5 Best Credit Card Sign-Up Bonuses.
7. Playing the 0-percent game
Many cards offer promotional financing offers of 0 percent on purchases and balance transfers. So what’s the harm in that? Well, for one thing, they encourage you to spend money you may not have. Furthermore, maintaining a large balance will eat up your available credit, hurting your credit score. Finally, even 0-percent balance transfer offers often come with fees of 3 to 5 percent.
Playing the 0-percent game is playing with fire. These offers are so common because the banks know that you’re likely to pay interest in the end.
For more on choosing the right credit card, check out our Credit Card Search Page.