Credit cards are a convenient way to buy things and get perks while you build your credit profile.
But mistakes can result in perks for your credit card company, and problems for you.
If you’re going to use plastic, avoid these common mistakes:
1. Using credit cards to spend money you don’t have
Credit card rates feature about the highest interest rates on the planet, often exceeding 25%.
If you need to borrow, look to other sources of financing, like a home equity line of credit. And once you’ve exceeded what’s available on your home equity, you could easily tap the credit card and convince yourself you’ll get things together.
There’s a reason they call it plastic (or virtual) crack. It’s so easy to use, and once you fire that dopamine rush in your brain, you’re very likely to keep on using it more and more regularly.
2. Not shopping for the best deal
Most people spend more time shopping for milk than they do credit cards. For example, you can find cards that don't charge interest for more than a year, or cards that give you money back, or maybe offer a sign-up bonus with enough points to pay for a flight or hotel.
In short, don’t just take whatever your bank offers or respond to an ad in your mailbox. Take a few minutes and get the best possible deal.
3. Ignoring your credit utilization ratio
Credit utilization is a huge part of your credit score. That’s the balance on your cards vs. their limit. Higher balances can knock your score down.
For example, if you have an approved credit limit of $10,000, and you have a $6,000 balance, your credit utilization is 60%.
Experts recommend using no more than 30% of your available credit. If you’re carrying more than that, you have two choices: either pay down the balance or ask for an increase in your limit.
4. Making only the minimum payment
It’s tempting to just pay the minimum when money is tight, and better than skipping a payment and being charged a penalty.
But you’ll need to pay balances in full to avoid interest fees altogether, which, as explained above, can be monster.
And eventually you also will need to question why you got into debt you couldn’t afford in the first place.
If you’re continually carrying a balance, you’re spending more than you’re making: not a healthy sign.
5. Not keeping track of your spending
The accessibility and speed of credit cards makes them convenient. That also can make it easy to spend money that you didn’t realize you were spending.
You can pay some of your regular bills on your credit card. And you can pay your rent or mortgage with a credit card.
And you can also combine paying your dentist, your subscriptions and your groceries in a single day and keep going.
Once you rack up a big bill, you’re more likely to be overwhelmed and frustrated, and slip into credit card debt.
Solution? Track your spending. There are any number of free or cheap apps that can help.
6. Multiple credit cards
You definitely can have too many credit cards.
However, the specific number is a personal decision based on your financial behavior.
For some people, one card is plenty. They’re not running a business. They’re not collecting fees on multiple credit lines, and they don’t need perks because they already travel so much with the rewards they’ve earned from just one travel card.
Opening dozens of credit cards and letting them sit without use can make a lot of card issuers nervous. Some could lower your limits or close your account.
Most experts suggest having at least two cards, with one for emergencies, especially if you travel. But starting a card collection could be dangerous, as well as a hassle to stay on top of.
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