Getting your first credit card can be a scary experience. Credit card debt can grow exponentially if you’re not careful and can affect your ability to buy a car, a house, or even get a job. Ideally, spending money you don’t own is never a good idea, but it’s not always practical. Whether for building credit, or making end of month payments, here’s the most common credit card mistakes new credit card users make.
1.) Carrying a balance month to month.
I’m not sure what started this myth, but it is NOT TRUE. Carrying a small balance from one month to the next does not help increase your credit score. For the best results, pay off each balance in full at the end of the month.
3.) Ignoring your credit utilization rate.
Even if you pay off every cent each month, you may still be hurting your credit score. Credit companies also like to track that you are not using too much of your available credit. Although this has less of an impact on your score compared to other things, lenders want to see that although you have credit available, you are not in a position to be using too much too often. If your credit utilization is above 30%, call your bank and ask for a raise in your available credit. This way, you can keep your spending the same and reduce your credit utilization. However, raising your available credit may result in a hard inquiry.
4.) Too many hard inquiries.
If you apply for a new credit card, increase your available credit, or apply for a loan, you will likely have a hard inquiry reported on your credit report. A hard inquiry negatively affects your score because it shows that you are gaining too much credit too fast. Don’t worry, because a hard inquiry is only reported for about 2 years. Checking your credit score for non-lending purposes (like if you are using an app such as CreditKarma), is a soft inquiry and will not affect your credit score.
5.) Not tracking your credit.
In this day and age, there is absolutely no excuse for not knowing your credit score. Tracking your credit score is the best way for you to learn how changes in your spending affect your credit. It is also important because the credit bureau might make a mistake in your credit that could go undetected until you need to take out an important loan. You can dispute errors on your credit card, but only if you find them.
6.) Overvaluing the rewards.
Almost every credit card company offers rewards based on how much or where you decide to spend your money. Any program that encourages you to spend money in order to make money should make you very nervous. Credit card companies offer rewards because they know it encourages most consumers to spend more money than they initially would. A 3% cash back rewards may sound like a lot, but often times you will spend more than 3% in anticipation of rewards.
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What’s been your biggest credit card mistake? What helps you stay on track of your credit?