Three Mistakes You Should Never Make with Your Credit Card

Keep these financial tips in mind and your credit score will be golden.

While there are advantages to owning a credit card or two, there are also temptations that can lure card owners down the wrong path. It goes without saying that avoiding credit card debt is a given, but what are other mistakes you should never make with your credit card?

Colleen McCreary, Chief People Officer at Credit Karma first highlights the perks to responsibly owning a credit card. She shares that credit cards are great vessels to earn cashback points as well as redeem rewards for purchases. Credit cards also lay the foundation to building good credit, which can help with big purchases such as buying a car or your first home.

While she's quick to note the advantages, McCreary also shares there are risks involved in using credit cards. Here are the biggest pitfalls when it comes to owning and using a credit card:

Three Mistakes You Should Never Make with Your Credit Card
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Just Paying the Minimum Balance

You don't need to be a financial expert to know that credit card debt can be a snowball effect, even feeling like an avalanche as emergencies and unexpected bills seems to fall from the sky unexpectedly.

"Different credit card companies have different minimum balances, so it's important you read through the fine print to know how much your minimum payment is and when it's due," says McCreary. Living paycheck to paycheck or creating the budget for the month, paying only your credit card's minimum payment may seem like a way to make it through. However, according to McCreary, it is not advised.

"Making only the minimum payment on your credit card might seem easier with your current budget, but it can add years to how long it takes to pay off your balance."

If possible, pay more than your statement's minimum balance and, in return, it will help your credit card score as well as keep your credit utilization rate low.

Using Payday Loans and Maxing Out Credit Cards

A payday loan may sound like a viable solution when needed, however McCreary says it should be your last resort as they typically have higher fees and difficult repayment terms.

As it stands today, opting for a payday loan could be the catalyst to a snowball effect of debt. "If you can't repay yours right away, you may find yourself refinancing the debt repeatedly and paying more in interest than the original amount you borrowed."

Since payday loans aren't advised, if an emergency strikes, should you max out your credit card instead? The answer is no, never max out your cards. "Maxing out your credit card gets you to a 100% utilization rate when it's commonly said that you should aim to use less than 30% of your available credit," shares McCreary.

To calculate your credit utilization rate, divide the amount of revolving credit you're currently using by the total sum of revolving credit you have accessible. According to our financial expert, this is one of the most significant factors that affects your credit score.

"There's a strong correlation between a consumer's credit card utilization rate and their credit scores." McCreary says those who keep their utilization percentage low, generally have higher scores as opposed to those who routinely run high credit card bills.

The best practice is to have a plan in place to pay the owed amount back prior to using credit. This way, card users will avoid soaring interest rates and a negative hit to their credit score.

Making Irresponsible Purchases

Making responsible purchases that you know you can pay back within the month's payment timeline will keep your credit card utilization low, but will also prevent you from paying high-interest fees over a long period of time.

Utilizing your credit card responsibly can help you build credit as well as establish a good credit history. According to McCreary, this is done by paying off your balance each month and never skipping a payment.

Accountable card users can also reap rewards too. "If you're disciplined about spending within your means and always pay off your balance on time each month, a rewards credit card can be a compelling reason to use your credit card."

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