Credit Cards How To Use Credit Cards Wisely

How to Avoid 7 Common Credit Card Mistakes

So you want to have a credit card in your wallet? It’s a great financial tool to get you what you need, when you need it — all while helping you build up your credit score. But credit cards are only good for you if you vow to use that plastic wisely. If not, you could be in for a world of financial hurt.

Think you’re ready to dive into the word of responsible credit card use? If so, your first job is to swear on whatever you love best to never, ever, commit these seven deadly credit card sins again.

  1. Paying Your Bills Late

This can happen to anyone, of course, and everyone makes a mistake now and then. Still, your credit card company is going to give you zero leeway with this — it’s part of how they make their money. A payment that’s even just a day late will earn you a late payment charge, which can start at $27 for your first time and go up from there for additional slip-ups. You’ll also end up paying interest on the past-due amount, so you’ll see a significant jump in your next bill.

The Solution: Set up a reminder on your phone the repeats every month so you can’t forget. Choose the most obnoxious alarm you can and get the payment in the mail — or push the button to pay it online.

  1. Skipping a Payment

Even worse, if you have a payment that’s really late — like you forgot it entirely and it goes for 30 days or so — your credit rating is going to take a hit. In general, the longer your account goes unpaid, the bigger the deduction to your FICO score. Make that payment a month late, and your credit score could drop by a full 100 points.

Ouch.

The Solution: Even if you can only manage to pay the minimum, pay it. A partial payment still counts as a payment, so you can avoid all the negative reporting to the credit agencies that come with a missed payment.

  1. Getting Slapped With Extra Fees

We’ve already talked about the late fee, but your card may have other hidden fees that you don’t know about until they show up on your card. Many credit cards have a fee for making cash advances or a cash withdrawal from an ATM. You may also have a contract that stipulates charges for foreign transaction and currency conversions.

The Solution: Read the fine print! If you’re planning to travel, check to see if your card is worth taking or if you’ll be swamped with extra charges when you get home. Skip the cash withdrawals, and make sure that you don’t let a card with an annual fee sit around unused — you’ll be wasting your money!

  1. Buying Stuff You Don’t Need to Earn Points

If you have a rewards credit card, it can be very tempting to charge as much as you can on it to pump up your points total and get to that Hawaiian getaway a little faster. Credit card companies know this, so they’ll even send you flyers letting you know which categories of spending are up for bonus points this month. That’s cool, but if you’re suddenly eating out seven nights a week to take advantage of dining points, you’re doing it wrong.

The Solution: Use your rewards card for your everyday spending like gas and groceries. These purchases help you build points steadily, since you buy this stuff all the time — but you also know you can pay it off because it’s already in the budget.

  1. Not Having a Rewards Card

While it’s sometimes a little too easy to succumb to the siren song of the bonus points, don’t over-correct and swear off rewards cards entirely. If you have a credit score good enough to get you a card with rewards, go for it! These days there’s a card out there for every interest, so you’d be foolish not to take advantage to at least get a little cash back to use to pay for your holiday gifts or something.

The Solution: First, decide what kind of rewards you want. Is it cash back? Free gas? Travel rewards? Once you have a sense of how you’d like to spend your rewards, do a little research to find the best card you qualify for. Then use it just like you would any other credit card, and you’ll be golden.

  1. Missing Out on a Signing Bonus

While we’re on the subject of shopping around for a rewards card, did you know that the really good ones offer a signing bonus? Whether it’s straight-up cash or a pile of extra points you can use later, these incentives are worth the effort. Most companies require you to charge a certain amount within the first few months of opening the card to qualify, though.

The Solution: Track your spending to hit the mark. This is a great reason to sign up for online access so you can look at your latest transactions and see how close you are to the total. If the deadline is approaching and you’re not quite there, see if you can pay a utility bill or two with your card to push you across the finish line.

  1. Closing Your Old Credit Card Accounts

Keeping a credit card you don’t use and getting charged the annual fee is a mistake, but closing cards without thinking about the impact on your credit score is also a problem. Whenever you close a credit card account, you reduce the total amount of credit you have to your name — and that in turn changes the ratio of debt you owe to the credit you have. This is called your credit utilization rate, and it affects your credit score.

The Solution: Take the time to figure out your ballpark credit utilization rate by adding up your debt on all credit cards and dividing it by the total amount of your credit lines. Your credit utilization rate should be at 30 percent or less. If closing a card knocks that figure out of whack, hold off.

In general, the key to avoiding these deadly credit card mistakes is to pay attention to your spending and pay your card off religiously. When you treat your plastic with the respect it deserves, you’ll be rewarded with a great credit score — and maybe even a dream vacation or two.

About the author

Beth Trach

Elizabeth Trach is a writer and editor living in Newburyport, MA. She also sings in a band, grows almost all her own food, and occasionally even cooks it. You can catch up on all her adventures in frugal living and extreme gardening at Port Potager.

28 Comments

  • Why do I have a score of 580 with freecreditreport.com and a score of 649 with my capital one credit score tracker? That’s quite a difference!

  • My credit score was a 690 before I purchased my car last year I have never been late only use 25% of my credit and my score will not go higher then a 640 now. What can I do to increase this faster or am I doing something wrong all credit is on auto pay and paid before the due date.

  • I filed for bankruptcy over twenty ( 20 ) years ago… is it seen anywhere on my records? thank you.

  • Mike
    If a creditor lowered your available credit amount due to many other open credit with high amount but not over or half the amount on the cards; will this bring your credit score down?

  • How do you know what score are real. I have a website that gives me all of the Bureaus and my score is 708-711&713 but I got a letter to refuse me credit and said my scores were in the 400 range what’s up with that?

    • Hi Kimberly,

      You can check all 3 of your credit reports here: http://www.gofreecredit.com.

      I’m not sure which service you used previously, but perhaps your score has changed since you last checked it. It is a good idea to get a copy of your actual credit report, not just the score, so that you can verify all of the information is correct.

      Abbey

    • I recently had this experience. I have pulled my credit and corrected everything on it. My Transunion score is 636, so, although I had a ch.7 BK last July, I have not had any lates. I thought that Barclay Bank Visa went down to 590, so I applied. They are not secured and offer rewards. I received a rejection letter, stating that my score from TU was 495. They are using Chexsystems and get different scores than the FICO. Same with the credit union. I was looking to do a secured loan to build credit and the score came back 495. I did another http://www.creditkarma.com and my FICO is still 636, even after the 2 inquiries.
      What score model are they using now?
      – See more at: https://thecreditsolutionprogram.com/staging/most-common-credit-card-mistakes-and-how-to-avoid-them/#comment-49663

      • Hi Deb,

        The thing to remember when checking your credit score is that these are private, for-profit companies and they each use a different formula to calculate your scores. This means that your score at one company can be higher or lower than it is at the other ones. The only way to know exactly what factors are being used to calculate your score is to pull copies of the actual credit reports.

        Chexsystems is slightly different in that they report information regarding deposit accounts, rather than credit accounts. This means that they monitor and report things like overdrafts and fraudulent check deposits, whereas the other bureaus report information regarding credit accounts and monitor things like collection accounts and unpaid student loans.

        Because Chexsytems reports different information, their scoring will be different as well. Before you apply for a new card, find out what the qualifications are and what systems they use to decide to review your credit and banking history so that you can have an idea of whether or not you will qualify before you apply.

        Abbey

  • Hi i am a young female trying to build credit but when i was 16 my debit card was stolen i was very irresponsable didnt report it on time but i paid the bank back all the withdrawl that happened in my account every since 2010. Now i am unable to apply for major credit cards or departmen store cards my credit score is low i recently got a secure credit card through td bank but any other major banks turns me down to open accounts about a month ago td bank approved me for 300 dollars secure credit card how can i get rid of that negative on my credit report all i have is a letter from that bank stating is being settled but that still affecting my credit score any advice helps thanks.
    Karen

    • Hi Karen,

      We all make mistakes when we are younger that unfortunately follow us for years afterward. Building your credit can be a slow process at first, but you will build momentum and see your score improve if you keep up the hard work. Pay the full balance due on your secured card every month, and make sure every payment is on time (you may want to set up automated bill pay to make sure you don’t miss a payment).

      Secured cards are a stepping stone to qualifying for an unsecured credit line, so be patient while you are building a positive credit history. As far as removing the negative item from your report, you can use ask the credit reporting agency in writing to investigate the item’s accuracy. If they cannot provide the information you requested within 30 days, they are required to remove it from your report. Learn more here: https://thecreditsolutionprogram.com/staging/education/disputing-errors/

      Abbey

  • Hello. I have several hospital bills that are on my credit report otherwise its squeaky clean but I was wondering the best way to go about getting these off my credit reports. I have the money to pay them but am scared if I shell out several hundreds of dollars to pay them off that they will not remove them from the report. Should I contact the hospitals to resolve this matter or deal with the collection agents? Some of these are very old so I don’t know who to contact. Thanks for your time

    • Hi Heather,

      You should be able to tell which company you owe the money to by looking at your credit report. If you are still unsure, contact the company that you originally owed the debt to and ask them whom they sold the debt to, They should be able to provide you this information and point you in the right direction.

      Paying the remaining balance on the debt will not necessarily remove it from your credit report. Collection accounts typically remain on your report for 7 years, but there are several different tactics you can use to try and have them removed earlier. One of these tactics is disputing the item due to an error. You can learn more about this by watching these videos that Mike put together for our readers: https://thecreditsolutionprogram.com/staging/educational-videos/disputing-errors/.

      Abbey

  • Great News! I used your ‘advise’ on validation letters and got a 4699.00 debt removed from my credit. They did say that the OC may still report but I will deal with them later. My ques. is this: I had a CC, fell behind on pmts, lost it, they sent settlement of 457, i counter offered and paid 100.00 w/ PIF on the check. They still call. Recently I sent a letter stating that this is paid according to the “Accord & Satisfaction” rule and i am guessing they are still saying no because they still call. I have not spoken with them so how should I handle them?

    • Hi Kendra,

      Did you both (you and the collection agency) agree in writing that the $100 would settle the account? If not, they may still be calling because they do not consider the matter finished. If you have any documentation that you agreed to settle the debt for that amount, send them a copy via certified mail return receipt.

      Abbbey

  • Sorry, but, just to add to my post

    The two Credit card Companies that reported the thirty day late payments to the Credit Bureau’s, those two cards are paid in full and i have checked all three Credit Scores ( ranging from 750 to 785 ). People tell me not to worry about the two negative reports, but i’m a perfectionist and those two late payments are the only thing that i have ever paid late. Love your website.

    Sincerely, Rob

    • Hi Rob,

      Thanks for reaching out, I’m glad that you have found help on our site.

      When it comes to your credit score, there’s is no such thing as being too much of a perfectionist–in fact, the more detail oriented you are, the better.

      Since you only have the two late payments on your report, you may want to try sending a Goodwill Letter to each creditor asking them to remove the items. Mike explains this process in detail here: https://thecreditsolutionprogram.com/staging/educational-videos/goodwill-sample-letters/.

      Hope that helps!

      Abbey

  • Hi. In 2009 i lost my job ( company closed their doors and moved out of the country ), i was unemployed and trying to find the right job for almost two years. Long story short, my unemployment was coming to an end and i had to choose between filing Bankruptcy or continue to use my savings to pay the Creditors and after about forty five days, i decided to stay in good faith with my creditors and pay my credit debts. But, after speaking with my creditors to establish making timely payments again, two of the six Creditors reported to the Bureau that i did indeed have two, thirty day late payments. That was June of 2011.

    Question. Is there anything that i can do with these two Creditors to have the late payments deleted from my Credit Report. I called them , but they were not interested in removing the the two late payments. I have researched, and i have read that the Credit card Companies can indeed remove them, but they tell me that it’s out of their hands at this point, being that a twenty four month grace period has come and gone.

    Sincerely appreciate your time and advice.
    Thx, Rod

    • Hi Rod,

      I’m sorry that you have been struggling with unemployment. Paying bills on time can be hard enough when you are working, so I can imagine it was very stressful trying to keep up with payments while you were in between jobs.

      Since it sounds like you have been in good standing with your accounts aside from the two 30 day late payments, you may be successful in having them removed from your credit report by writing them Goodwill Letters. Mike explains that process in more detail here: https://thecreditsolutionprogram.com/staging/educational-videos/goodwill-sample-letters/.

      You may have to make more than one attempt at this, but if you are successful it is well worth all of the work. Check back in and let us know how it goes, and good luck!

      Abbey

  • I currently have student loan debt I have been reading all of your email on how to improve my credit score and it has improved by 50 points, however What is the best way to rremove old student loan debt off your credit report Its been 9 years.

  • I just filed chapter 7 bankruptcy. How can I re establish my credit card history? What are the best credit card things I should apply to to reestablish my credit history?

    Thank you desiring to start over the right way.

      • Hi Mike I have paid in full my credit card and had it closed at my request, however , i had been late in payment one time only. There fore the creditor continues to report it as negative on my credit report. Finally, I requested from creditor in writing that credit card was paid in full and closed at my request and should state as positive at this time. the creditor send me than a statement stating” paid in full and satisfied” so I could send it to the three CB. I did so, but CB have just updated it and place it as ” costumer” disputed this item”. What else should I do? I really appreciate your effort at this time. Thank you very much!

        • Hi Chris,

          Great job using this tactic to remove negative items from your credit report and increase your score. If successful, this tactic is well worth the time you invest in it.

          Unfortunately, disputing items is not an instantaneous process that immediately removes items from your report. Chances are that the credit bureaus are investigating your dispute and deciding if it is valid before they remove the item from your report or reject your request. If the request is under investigation, there should be an “XB” code next to the disputed item. The good news is that “XB” items are not calculated into your credit score while they are being actively disputed.

          Be patient and keep checking to see if the item is removed. Congratulations on paying this debt in full–keep up the good work!

          Abbey

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