10 common credit card mistakes to avoid

A credit card can be a great way to pay for purchases, earn rewards and build credit. But that’s only if you use it responsibly. Otherwise, you might run into things like penalties and fees. 

And those can cost you money, and some may even hurt your credit. But by understanding how credit cards work, you can take advantage of perks and avoid pitfalls. Here are 10 common credit card mistakes to avoid.

The Consumer Financial Protection Bureau (CFPB) says a credit card payment will not be considered late if it is received by 5 p.m. on the due date. Missing your payment deadline could come with several consequences. For example, issuers can charge a fee the first time your credit card payment is late. And if you’re late again within the next six billing cycles, issuers can generally charge an even higher late fee.

Payment history is also an important part of credit scoring, according to the CFPB. Your scores could take a hit once a payment is 30 or more days past due. And that kind of negative information can stay on your credit reports for seven years—at least. Consider using automatic payments or setting a reminder a few days before the payment is due to help yourself remember. 

It’s also important to consider how much you’re paying every month to avoid the second mistake...

A minimum payment is the smallest amount you must pay on your credit card each month to remain in good standing. And making the minimum payment by the due date every month can help keep your account in good standing and help you avoid penalties and fees. 

But if you’re making only the minimum payment every month, the CFPB says it can take longer to pay off your credit card debt. That’s because you’ll typically be charged interest on the unpaid portion of your balance. 

But there’s more to know about interest. And learning how it works can help you avoid the next mistake...

Credit card interest is the cost of borrowing money. The good news is you may avoid interest charges on new purchases if you pay your balance in full by the due date every month. But remember those minimum payments from above? If you carry over part of your balance to the next month, then you’ll probably be charged interest on it. 

You might also have different interest rates depending on the type of transaction. So things like cash advances and balance transfers may have higher rates or additional fees. And those transactions may not have a grace period. You can check with your card issuer if you have questions. 

You might also be able to check your card agreement, which can help you avoid the fourth mistake...

Card agreements might seem complicated at first, but reading yours can help you better understand how your credit card works. The agreement contains lots of information about your card’s interest rates, fees, limits and more. 

Card agreements even have specifics about how interest is calculated and a glossary of important terms. Getting to know some common credit card terms may be helpful. And reading through all of it might help you avoid surprises. 

But your card agreement isn’t the only document you should be aware of—at least not if you want to avoid the next mistake...

Your credit card statement is a document that summarizes your credit card activity over the previous month—among other things. While that might sound boring, your statement is actually full of helpful information. And knowing what’s in it can help you keep your account in good standing. 

For example, your billing statement includes your statement balance, minimum payment and due date. It also tells you how much interest you’ll pay if you make only the minimum payment. And it might be a chance to spot fraudulent activity on your account. At the very least, you can check your statement to find out how much you owe—and when. 

You can also use your statement to keep an eye on how close you are to maxing out your card. That brings the list to the sixth mistake...

If you’re approved for a credit card, the issuer will assign you a credit limit. This is the maximum amount you can charge to your card. While you’re allowed to use the entire credit limit, doing so could hurt your credit scores. 

That’s because a portion of your credit score depends on the amount of credit you’re using compared with what you have available. This is known as your credit utilization ratio. According to the CFPB, getting close to your credit limit could hurt your credit scores. They say experts advise against using more than 30% of your total credit limit—across all accounts.

Maxing out your credit cards isn’t the only thing that can affect your credit. So can the next mistake...

Nothing’s stopping you from applying for multiple credit cards, but you should understand how it might affect your credit. When you submit a credit card application, the card issuer will pull your credit history. This is known as a hard inquiry.

And submitting several credit card applications in a short time could cause your score to dip temporarily, according to the CFPB. Plus, the agency says it could give lenders the wrong impression about your finances. So it might be a good idea to apply for cards that fit your credit profile and to wait a few months between credit card applications.

Multiple applications over a short period could ding your credit. But don’t fall into the trap of the eighth mistake...

A credit card is a financial commitment, so it’s important to make sure the card fits your situation so you’re able to use it responsibly. Shopping around could help you avoid fees and find the card with the best interest rate, according to the CFPB.

One step might be pre-approval. Getting pre-approved is no guarantee of approval, but it can give you more confidence when you apply. And it might help you avoid unnecessary inquiries if you know your application is likely to be declined. Doing some research could also help. If you know you have a fair credit score, it might help you narrow down your options.

Applying for a bunch of cards could affect your credit and so can closing existing accounts. That brings the list to its ninth mistake...

Generally, you may be able to close a credit card account anytime by calling your credit card company or going online. Before your account is closed, the CFPB says you’ll need to pay down any balance on schedule. The agency also says your card issuer is allowed to charge interest on what you owe. 

But closing the account might also affect your credit in other ways. First, it could affect the length of your credit history. And remember credit utilization in the sixth mistake above? If you have multiple credit cards, closing one might increase the percentage of available credit you’re using. So it might be helpful to fully consider the potential effects before closing an account. 

But there’s one thing you don’t want to wait on, and it happens to be the final mistake to avoid...

Whether your physical card is stolen or just your credit card information, your liability for fraudulent credit card charges tops out at $50. That’s according to the Fair Credit Billing Act. But that’s only if the fraudulent charges are investigated and verified. And for that to happen, you have to report them first.

If you act fast and report a lost credit card before it’s used, then you may not be responsible for any charges you didn’t authorize. That’s because some credit card issuers might waive your liability for any fraudulent charges. But the key is to report a missing or stolen credit card as soon as possible.

Mistakes happen. But learning from them can help you avoid repeating them. And identifying potential problems ahead of time might help you avoid mistakes altogether. Hopefully, this list helps you do that. It may also help to explore how to develop good habits to have a positive relationship with credit.