10 Credit Card Mistakes You're Probably Making

In theory, credit cards are pretty simple. You charge a purchase to your card, maybe earn some rewards, and then pay the credit card company at the end of the month. But in practice, things can get complicated quickly. Make the wrong move and you could damage your credit score or find yourself buried beneath a mountain of costly debt.

It happens more often than you think. Here are 10 common credit card mistakes people make all the time without fully understanding the consequences.

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Paying late is the single biggest credit card mistake you can make because payment history is the largest factor in determining your credit score. Even one late payment can drop an excellent credit score significantly, and it will keep haunting you for the next seven years until it falls off your credit report.

This probably won't happen if you're only a day late, but if you're 30 or more days behind, you can be sure your credit card issuer has notified the credit bureaus. To avoid this, keep a close eye on your payment due date and set a reminder for yourself, if necessary.

ALSO READ: 4 Credit Card Rules You Should Always Follow

You don't have to pay your full credit card balance every month in order to avoid a late payment fee. But carrying a balance is a costly trap to fall into. What starts out as a few hundred dollars can balloon quickly thanks to credit cards' high annual percentage rates (APRs). This makes it more and more difficult to get out of debt.

It's best to only charge as much to your credit card as you know you can pay back at the end of the month. But if you already have credit card debt, consider a balance transfer card or a personal loan to help you pay it off.

Your credit utilization ratio, or the ratio between the amount of credit you use every month and the amount available to you, is the second-largest factor in your credit score calculation. You can figure out what yours is by dividing your credit limit by your average monthly credit usage. For example, if you have a $10,000 limit and spend about $2,000 on average, your credit utilization ratio is 20%.

You want to keep yours under 30% whenever possible. A higher credit utilization ratio suggests you need a lot of credit to maintain your lifestyle. It makes lenders less interested in working with you. If your credit utilization ratio is too high, one option to lower it is to reach out to your lender to request a credit limit increase.

Every time you apply for a credit card or a credit limit increase, the card issuer does a hard credit check on your credit report. This drops your score by a few points. It's not a big deal if you're approved for the card, but if you're denied, you just cost yourself for no reason. That's why you should only apply for new credit if you feel pretty confident you qualify for it.

You should also avoid applying for new credit more than once every six months. There is an exception for normal credit shopping behavior where the credit bureaus will consider all hard credit inquiries that take place within about 30 days of each other as a single inquiry. But if you apply for a new card after the 30 days, you'll add another hard credit check to your report.

ALSO READ: Here's How a New Credit Card Could Help You Fight Inflation

Closing a credit card might sound like a good idea if you don't use it, but it can actually hurt your credit score. When you close a card, you're lowering your available credit and, consequently, raising your credit utilization ratio. As discussed in a previous slide, this can lower your credit score.

It might still be worth closing a card if it charges you an annual fee you don't want to pay. In this case, close the card and avoid closing any others for at least six months. If the card doesn't have a fee, consider leaving it open even if you're not using it.

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Everyone has unique spending and lifestyle habits, and these are important to take into account when deciding which credit card makes the most sense for you. It doesn't make sense to go with a travel rewards card if you rarely travel, for example. And you may not want a card that offers bonus rewards for gas if you don't own a car.

Think about what you're hoping to get from your credit card and let that guide your decision. Consider how the new card complements the other cards in your wallet as well.

It's important to review your billing statement carefully to ensure you catch any fraudulent purchases right away. When you notify your credit card company immediately, most of the time, it will take off the extra charges right away and you'll be off the hook. But if you wait to notify the company of the fraud, you could end up paying for some purchases you didn't make.

It's also a good idea to review your billing statement for any account changes. Sometimes, credit card issuers put updates about changing APRs or rewards terms on your billing statement. If you aren't reading yours carefully, you could miss these things.

ALSO READ: This 1 Trap Could Cost You a Credit Card Sign-Up Bonus

Your cardholder agreement holds a lot of useful information, including your card's APRs, the terms for any rewards programs, and details of any other perks or fees your card includes. You should read this over carefully as soon as you get the card. You may even be able to find a copy online before you apply for the card.

Make sure you understand these terms and contact your credit card insurer if you have any questions about them. This can help you avoid problems down the line.

Some credit card rewards have expiration dates. If you don't use your points or miles before this date, you forfeit them. You can usually find details about when your rewards expire, if at all, in your cardholder agreement.

Make note of how much time you have to spend your points and try to use them within the designated time frame. Worst-case scenario, you may be able to use some of them to reduce your balance on your next credit card bill. However, reward redemption options vary by card.

Rewards points and miles are usually the most advertised credit card perks, but they're not always the only ones. Some travel cards include free airport lounge access, travel insurance, and even free airplane tickets. Other cards will reimburse you for a purchase if you later find it cheaper somewhere else or if the retailer is unwilling to accept your return.

Review your credit card agreement carefully to ensure you're not missing any other useful benefits. Note any limitations for these other perks as well, so you don't run into problems when you try to use them.

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If you're guilty of any of the credit card mistakes listed, that's OK. A lot of people make them. But you don't have to make them anymore. Keep the tips discussed here in mind going forward so you can keep your credit score high and get the most out of your card.

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