3 Credit Card Mistakes to Avoid

Credit cards add convenience to your financial situation, as you can charge purchases when you are running low on the funds needed to pay for your necessities outright.

If you use your credit cards to pay for added expenses, such as a new computer or concert tickets, and are not mindful of your purchases, then you can max out your credit cards. Maxing out your credit cards is a common mistake and it can have a debilitating impact on your credit. The more you charge to your credit card, the harder it becomes to pay down your debt over time.

In addition to debt, you also damage your credit score, which has a significant impact on your financial future. To ensure you are protecting your credit score, you must avoid these three credit card mistakes most commonly committed by cardholders with multiple credit accounts. By avoiding these mistakes, you can work toward steadily building your credit over time and remain free from debt in the process.

1.     Only Making Minimum Payments or Making Your Payments Late

When you have a credit card, you must learn how to properly make payments to reduce your debt while steadily building your credit. This balance may seem difficult to achieve, but there are a few basic steps you can follow to pay down your credit card bills with minimal effort.

Typically, credit holders believe simply making the minimum payment on your credit card statement can help you build credit, but this is usually a mistake. While it is important to make your minimum payments, you must always pay more toward your balance when you have the financial stability to do so. If you only make your minimum payment, then you carry a balance on your credit card for longer, which consistently raises your interest rate. By paying more than your minimum, you reduce the amount of time it takes to pay off your debt while lowering your interest rates each month.

If you make your payments late, then you run the risk of experiencing issues like those posed by only making your minimum payments. Late payments amass higher interest rates and come with expensive late fees. When you forget to pay your credit card bill, you impact your credit score as well, as you consistently lose points on your credit score with each late payment you make.

When organizing your finances and making a budget, create a schedule of payments in increased amounts above your minimum payment and be sure to submit these payments a few days ahead of the due date on your statement. Mark the due date on your calendar to ensure you do not miss another payment in the future.

2.     Loaning Your Credit Card to Others

When a friend or family member is hurting for money, you may be tempted to loan them your credit card to help alleviate some of the pressure associated with their financial burden. It is never wise to loan your credit card to others, as this can severely damage your credit score for years to come. Whoever you loan your credit card to can make whatever purchases he or she deems fit and may spend more than what you originally thought he or she would spend when you agreed to loan the card.

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You may believe you can trust a friend or family member to be financially responsible with your money and your credit, but this behavior is never guaranteed. Even if someone promises to pay you back, you must not agree to this exchange. You can never be sure of when someone is going to pay you back for money he or she has borrowed, and the risk becomes even greater when your credit card is involved. You can use your judgment if someone wants to borrow your credit card for a small purchase or if you feel comfortable paying off the purchases for someone you know, but this is ultimately not advisable.

If you and your spouse share a credit card, then you must be mindful of how often each person uses the card, otherwise, you risk amassing too much debt. With a shared credit card, it is best to use it only for purchases you both make, such as mortgage or utility payments.

3.     Maxing Out Your Credit Card or Credit Cards

Whether you have one credit card or five, you must avoid maxing out your credit cards, as this can impact your credit score well into your financial future. When you max out your credit card, there are several penalties attached to this action you may not be aware of until it is too late.

If you spend over 30 percent of your credit limit, then you begin to experience the risks associated with this action. When you max out your credit, you are assessed an over-the-limit penalty fee from your credit card provider. In addition to this fee, you are assessed a penalty interest rate, which can become steep, especially if you have maxed out more than one card. The higher your fees and interest rates, the more difficult it becomes to pay off your debt over time.

To avoid making this mistake, remain mindful of how much you are charging to each credit card and what your limit is for each. Before you make any large purchases, determine whether the amount you are going to pay exceeds the 30 percent threshold for your credit limit. While you can occasionally exceed this threshold, you must only do so when you know you have the funds to pay down the charge after it has been made. If you are unable to pay more than your minimum balance for the funds you are charging to your account, then you may want to refrain from making any future purchases with your credit card until you have reduced your balance.

Once you have maxed out your credit card, it becomes difficult to regain a high credit score. In the best cases, you can improve your credit score within a few months of paying above your minimum balance each month. In the worst cases, it can take you several years to gain control of your credit score again, which can impact your ability to receive housing and loans.

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