If you’re asking, “what should you know about a credit card,” you might be credit card illiterate. That’s okay, many people are. That’s why we’re going to go over the things you need to know about credit cards so you don’t make these common credit card mistakes.
These are the common credit card mistakes to avoid: Spending more than 50% of your credit limit on a single card, carrying a $0 balance, closing credit card accounts, you should never any store credit card like the Walmart credit card and more. Let’s a look at the 8 common credit card misconceptions so you can learn everything you need to know about credit cards.
Has your credit score ever dropped suddenly? Have you seen your credit score jump up? Well stop wondering! Sites like the FTC tell you on a surface level how credit works, but not all the intricate details. This post explains it all.
#1 You Need To Understand Credit Card Utilization
Going over your credit card utilization is easily one of the worst credit card mistakes you can make. One of the most important credit terms you should know is “credit card utilization.” For any single credit card, you should NEVER spend more than 50% of your available credit limit. So if you have a credit limit of $1000, spending $500 on your credit card gets you to 50% credit utilization.
You should know that the credit card utilization percentage is taken from your credit card statement balance. So if you pay off SOME of your credit card balance before the statement date, you’re credit score won’t go down for having high credit utilization.
Don’t Spend too much
There’s another thing to remember, regarding one of the most major credit card mistakes, emphasizing for dramatic effect, is that you should never go over 30% of your total available credit among all your credit cards. I know, the math starts to get harder here but let’s look at an example of about one of the most important things you should know about credit cards:
- 30% TOTAL credit card utilization is the combined limit of all your credit cards
- If you have 5 credit cards with a limit of $1,000 each, your total available credit is $5,000. 30% of that is $1500, so you should never have more than $1500 in credit card debt total
Breaking it down
Okay, I covered that a lot faster than I thought. Bullet points were excessive, but necessary since this is one of the most common credit card mistakes. Just remember:
- Never use more than 50% on one credit card
- Never use more than 30% of you total available credit
- The percentage is calculated when on your credit card statement balance date
- You can pay off the balance early to keep the utilization number low
The perfect credit utilization amount is right between 1% to 10% of you total available credit. That’s how you can raise your credit score.
Is too much credit bad? No, just don’t have too much where you can’t achieve 1% debt every month. So if you have a $100,000 credit line, you’d need to have $1,000 in debt every month. That’s a lot of money so I have a sneaky way of spending money without actually spending money.
So if you’re asking if 5 credit is too many, I say it’s not enough. Get more, be responsible and the rewards will come.
#2 Paying your credit card bill too early!
I love seeing my accounts have a $0 balance. It’s a very calming number to have no outstanding debt. BUT, that doesn’t mean having a $0 credit card statement is good for your credit score. One of the things you should know about credit cards is that paying your credit card before your statement is bad for your credit score.
Why is paying off your credit card early a common credit card mistake? Because a $0 balance on your credit card statement tells lenders you aren’t using your credit. Of course, you may have just paid your credit card early and you are using your credit, but that’s not what the credit reporting bureaus see (Experian, Transunion, Equifax). They just see the number ZERO.
To fix this common credit card misconception, just make sure to have ANY balance on your credit card statement (that’s less than 50%). When your statement balance hits and shows that you have a balance with a credit card, it shows the credit bureaus that you are using your available credit responsibly.
#3 Having NO DEBT is BAD
Remember how #1 (above) is one of the worst major credit mistakes you can make? The credit game is not just about staying under 30% total credit card utilization, you also need to be using at least 1% of your total available credit. That means if you have a total of $10,000 in available total credit from 5 credit cards, each month you need to have at least a $100 statement balance total (that’s 1%).
Why do you need to have debt? Credit is credibility. Because credit lenders want to see you using your credit line and they want to see that you are using it responsibly. They can’t make money if your not in debt. Don’t worry though, I’ll explain later how to avoid finance charges later in this post.
There’s so much when it comes to everything you need to know about credit cards, but let’s take it one step at a time. You can have a $0 balance on all your credit cards and just hit the 1% total credit utilization using 1 credit card.
Just remember you need SOME activity to keep your credit cards open…and you should absolutely keep as many credit cards (with no annual fee) open.
#4 Don’t Close Your Credit Cards
The secret when it comes to how to build up your credit score is: age of credit cards, available credit card limits, credit utilization and history of on-time payments. That’s why if you’re trying to improve your credit score:
- Apply for no annual fee credit cards
- Keep them open forever
- Keep them active by spending on them at least once every year
The last part about active spending has mixed data from the online community. Personally, I’ve had credit cards closed on me after 2 years of inactivity which is BAD. If this ever happens to you, call the bank and tell them to update the credit card closure to say that YOU requested to close the account.
Basically, if the bank closes a credit card account in your name that looks really bad on your credit report and will show by dropping your credit score.
#5 Don’t Forget To Check Your Credit Report
If you’re trying to improve your credit score fast, you need to monitor your credit report every month. To do that, I use Credit Karma which is completely free. There’s more information on the RESOURCES page.
Why do you need to check your credit?
Checking your credit is important so you understand how your actions are impacting your credit score. Having an excellent credit score can save you a significant amount of money when it comes to loans. The more immediate benefit of a great credit score is that you can be approved for credit cards that just give you money (in the form of “sign up bonuses”).
When your credit gets good enough, just remember to learn the value of a credit card sign up bonus and don’t waste your time with something like the Walmart Credit Card.
#6 Don’t Get Store Credit Cards (example: The Walmart Credit Card)
I don’t want you to waste your time unless your spending a lot of money to get any decent value from the Walmart credit card, Kohls credit card or Home Depot Credit card. The typical sign up bonus gives you $25 to $50 for signing up, MAYBE 5% back in purchases and A VERY HIGH interest rate.
Sure, the Home Depot credit card might have 0% APR and it might work out for you in that situation. The truth is, this credit card sign up bonus is garbage. 5% back on a $1000 of purchases is $50 and if you add that with the $50 bonus, you just came out ahead with $100.
You’re going to want REALLY good credit because the sign up bonuses ARE MUCH BETTER. Typical sign up bonuses for major bank credit cards come in the range of $300-500 after the minimum spend requirement.
The credit card mistake here is to understand the true value of your credit card sign up bonus. If you get a card that tricks you into spending more money and has high interest rates, the bank wins. Screw that, you should win.
#7 Understand When Finance Charges Appear
I mentioned earlier in this major credit card mistakes list that you should have a balance because debt helps you improve your credit score. It’s even more important to know when the credit card finance charges begin going into your account.
You have 21 days from your statement balance date to pay off your credit card before the bank starts charging you fees (finance charge). If you don’t have great credit, these interest fees are going to be SUPER high. Make sure to pay the full statement balance each time. For any amount you don’t pay off, the finance charges will be added to that.
In general, I never recommend ONLY paying the minimum required payment with a bank. In the long run you’ll get financially wrecked from interest payments. But here’s one awesome credit tip to avoid your first finance charge.
SUPER INCREDIBLE CREDIT CARD TIP: The FIRST time you get a “finance charge” you can call the bank and ask them to waive it. Just tell them you don’t understand how it works and if they could waive the fee as a one-time courtesy.
That is literally the MOST valuable credit card tip you could learn. Asking the bank to waive fees. You’re welcome. Pay it forward by sharing this post.
#8 Don’t Forget To Pay Your Credit Cards ON TIME!
Yes, paying your credit card on time seems like the most obvious credit card mistake. But there’s more to this than you think! You should definitely set up AUTO PAY on all of your credit card accounts. I recommend using MINT to keep track of all your bank accounts and set up notifications for payment reminders
If you forget to make a credit card payment, this will cause your credit score to drop. A big factor for your credit score is on-time payments. But let’s say you missed a payment. What do you do when you miss a credit card payment?
That’s very smart of you for asking. If you forget to make a payment to the bank, follow these steps:
- Make the payment as soon as possible
- Call the bank. Be friendly and greet the banking representative nicely
- Explain to them that you forgot to set up autopay and didn’t see a payment reminder
- Let them know that you’ve made the payment
- Ask them “would it be possible to waive the finance charge?”
- Also ask them “is it possible to not report the late payment to the credit bureau?”
If you follow all the steps above when you miss a credit card payment, you should be able to maintain an excellent credit score while also avoiding a bank finance charge (interest payment).
Does this actually work? Yes! I have had success with this exact situation with US Bank and Chase Bank.
Congratulations! You made it to the end of all the things you need to know about credit cards! Mostly about the mistakes though. I’ve learned about all of these through research and my own experience. There’s a lot more useful credit tips on this site like how to get out of debt, the true cost of a high-interest rate, too many credit cards is actually good, and more!
If you’re in debt and want to learn how to get out of debt, I have the perfect post that explains my story on the topic. Let’s say you want to increase your credit card limit, you can do that too with the right information. Personally, I’ve had over 100 credit cards over the past 2 decades and my credit score is over 800. You’d think having too many credit cards would be bad, but it’s not! Keep at it and you can get there too.
These are the 8 things you should know about credit cards:
- You Need To Understand Credit Card Utilization
- Paying your credit card bill too early!
- Having NO DEBT is BAD
- Don’t Close Your Credit Cards
- Don’t Forget To Check Your Credit Report
- Don’t Get Store Credit Cards (example: The Walmart Credit Card)
- Understand When Finance Charges Appear
- Don’t Forget To Pay Your Credit Cards ON TIME!
If you get hit with a finance charge or forget to make a payment, call the bank and ask them nicely to waive the fee and to not add the late payment to your credit report. You can get away with this move at least once per year…maybe even more if you’re lucky.
That’s it. Share this post with some people you KNOW that are making these common credit card mistakes.