Welcome! Over the years, many of us have learned the ins and outs of managing our finances, from budgeting for household expenses to planning for the future. Credit cards, when used wisely, can be incredibly helpful tools – offering convenience, rewards, and even a way to build a positive financial history. However, it’s also easy to make small missteps with credit cards that can, unfortunately, have a negative impact on our credit score.
You might wonder, “Why is my credit score still important at this stage of life?” A good credit score can still open doors and save you money. It can influence insurance premiums, your ability to rent a new apartment or home, or even the terms you might get if you need a small loan for an unexpected home repair or to help a family member. It’s a measure of financial responsibility that lenders and other institutions look at. Understanding common credit card advice and avoiding key financial mistakes can help ensure your score reflects your years of careful money management.
The good news is that many of these mistakes are understandable and, more importantly, often fixable. This article will walk you through 13 common credit card errors that could be harming your score, and provide practical, empowering steps you can take to protect and even improve it. Let’s dive in and make sure our credit is working for us, not against us.
1. Making Late Payments
This is one of the most significant factors affecting your credit score. Your payment history – whether you pay your bills on time – accounts for a large portion of how your score is calculated. Even a single late payment can cause your score to drop, and multiple late payments can have a serious negative effect. Lenders see late payments as a sign of risk.
Why it hurts: Credit bureaus are notified when payments are 30 days or more overdue. This information can stay on your credit report for up to seven years.
What to do: Consistency is key. Always aim to pay at least the minimum amount due by the due date. Setting up automatic payments from your bank account for at least the minimum can be a lifesaver, ensuring you never miss a payment due to forgetfulness. You can also set calendar reminders a few days before your bills are due. If you do miss a payment, contact your card issuer immediately, pay what’s due, and see if they might be willing to waive the late fee or not report it, especially if it’s a first-time occurrence and you have a good history with them.
2. Paying Only the Minimum Amount Due
While making the minimum payment on time avoids a late fee and a negative mark for tardiness, consistently paying only the minimum can be detrimental in other ways. It means you’re carrying a balance, often a large one, and accruing interest. This can lead to a high credit utilization ratio (which we’ll discuss next) and can cost you a lot in interest charges over time.
Why it hurts: While not directly a “mistake” that dings your score for non-payment, it keeps your debt levels high, impacting your credit utilization. It also means you’re paying much more for your purchases due to interest.
What to do: Whenever possible, try to pay your credit card balance in full each month. If you can’t pay it all, pay as much over the minimum as you comfortably can. This will reduce your overall debt faster, save you money on interest, and help improve your credit utilization.
3. Maxing Out Your Credit Cards (High Credit Utilization)
Your credit utilization ratio (CUR) is the amount of credit you’re using compared to your total available credit. For example, if you have a credit card with a $5,000 limit and you have a $2,500 balance, your CUR for that card is 50%. Lenders prefer to see a low CUR, ideally below 30%, and even lower is better (some say below 10% is optimal).
Why it hurts: A high CUR signals to lenders that you might be over-reliant on credit or potentially facing financial difficulties, making you a higher risk. This is a very influential factor in your credit score.
What to do: Strive to keep your balances low relative to your credit limits. If you need to make a large purchase, consider if you can pay a significant portion of it down quickly. You could also request a credit limit increase on an existing card (if you can manage it responsibly), which can lower your CUR if your spending stays the same. Another strategy, if you use your card heavily but pay it off monthly, is to make a payment before your statement closing date to ensure a lower balance is reported to the credit bureaus.
4. Closing Old Credit Card Accounts
It might seem like a good idea to simplify your finances by closing credit card accounts you no longer use, especially older ones. However, this can sometimes backfire and negatively affect your credit score.
Why it hurts: Closing an old account can reduce the average age of your credit history, which is a factor in your score (longer history is generally better). It also reduces your total available credit, which can increase your overall credit utilization ratio if you carry balances on other cards.
What to do: If an old card has no annual fee, it’s often best to keep it open and use it for a small, occasional purchase (like a cup of coffee or a recurring small bill) that you pay off immediately. This keeps the account active and preserves its positive history and credit limit. If an old card has a high annual fee and you don’t get value from it, call the issuer to see if you can downgrade to a no-annual-fee card from the same issuer before considering closing it.
5. Opening Too Many New Credit Cards at Once
While having access to credit is good, applying for and opening several new credit cards in a short period can be a red flag to lenders and can temporarily lower your credit score.
Why it hurts: Each credit card application typically results in a “hard inquiry” on your credit report. Too many hard inquiries in a short time can suggest you’re desperate for credit or taking on too much debt. Additionally, new accounts lower the average age of your credit history.
What to do: Apply for new credit sparingly and only when you truly need it or when a new card offers significant benefits that outweigh the potential temporary dip in your score. Space out your applications over time, perhaps no more than one every six months to a year, unless you have a specific strategy in mind and understand the potential impact.
6. Co-signing Loans or Credit Cards Carelessly
Many of us want to help our children or grandchildren get started financially, and co-signing a loan or credit card application might seem like a kind gesture. However, it comes with significant responsibility and risk to your own credit score.
Why it hurts: When you co-sign, you are legally just as responsible for the debt as the primary borrower. If they miss payments or default, those negative marks will appear on your credit report and damage your score. The debt also counts towards your overall debt load, which can affect your ability to get credit for yourself.
What to do: Think very carefully before co-signing. Only do it if you have complete trust in the primary borrower’s ability and willingness to pay, and if you are financially prepared to take over the payments yourself if necessary. Ensure you have access to account information so you can monitor payments and step in if needed before any damage is done to your credit.
7. Ignoring Your Credit Reports
Your credit reports from the three major bureaus (Equifax, Experian, and TransUnion) are the source documents for your credit score. Errors on these reports are more common than you might think and can unfairly drag your score down. Identity theft can also lead to fraudulent accounts appearing on your report.
Why it hurts: If your credit report contains inaccurate negative information (like a late payment wrongly attributed to you, or an account that isn’t yours), your score will suffer until it’s corrected.
What to do: You are entitled to a free copy of your credit report from each of the three major credit bureaus once every 12 months through AnnualCreditReport.com. Review each report carefully. Look for any accounts you don’t recognize, incorrect payment histories, or other errors. If you find a mistake, dispute it immediately with the credit bureau and the creditor involved. Regularly monitoring your reports is a crucial piece of credit card advice.
8. Not Using Credit Cards At All
Some people prefer to avoid credit cards altogether, perhaps due to past negative experiences or a preference for cash or debit cards. While this approach can prevent debt, having no recent credit activity can sometimes make it difficult to generate a robust credit score or demonstrate responsible credit management if you do need credit in the future.
Why it hurts: Lenders like to see a history of responsible credit use. If there’s no activity, it’s harder for them to assess your creditworthiness. Your score might not be as high as it could be if you had a history of on-time payments with credit.
What to do: If you’re comfortable, consider using a credit card for one or two small, planned purchases each month (like gas or a regular subscription) and then paying the bill in full and on time. This builds a positive payment history without incurring interest charges and demonstrates responsible credit management.
9. Applying for Store Credit Cards Impulsively
It’s tempting to sign up for a store credit card at the checkout to get that immediate 10% or 20% discount on your purchase. However, these cards often come with downsides.
Why it hurts: Store credit cards frequently have very high interest rates and lower credit limits compared to general-purpose credit cards. Each application is a hard inquiry on your credit report, which can slightly lower your credit score. If you open many, it can add up. Also, a low credit limit can make it easy to have a high credit utilization ratio on that card, even with modest spending.
What to do: Before applying, weigh the one-time discount against the long-term implications. If you shop at the store very frequently and will pay the balance in full each month, it might be worthwhile. Otherwise, the high interest and potential score impact might not be worth the small initial saving. This is a common area for potential financial mistakes.
10. Missing Payments Due to Address or Bank Account Changes
Life changes, and sometimes we move or switch bank accounts. If you don’t update your contact and payment information with your credit card issuers promptly, it can lead to missed statements and, consequently, missed payments.
Why it hurts: A missed payment, regardless of the reason, is still reported as late and can damage your credit score.
What to do: Whenever you move or change your primary bank account (especially if you use it for autopay), make it a priority to update your information with all your creditors immediately. Double-check that any automatic payment setups have been correctly transferred to the new account. Consider signing up for e-statements as a backup to mailed statements.
11. Letting Small Unpaid Bills Go to Collections
Sometimes a small bill – perhaps an old utility bill, a medical co-pay, or even a library fine – can be overlooked. If these unpaid debts are eventually sent to a collection agency, it can severely harm your credit score.
Why it hurts: A collection account on your credit report is a serious negative item and can cause a significant drop in your score, regardless of the original amount owed. It stays on your report for up to seven years.
What to do: Pay all your bills on time, even small ones. If you dispute a bill, address the issue directly with the original creditor promptly and in writing. Keep records of your communications. Don’t ignore overdue notices, as this is how small debts can escalate into big credit problems.
12. Misunderstanding or Misusing Cash Advances
Credit cards offer the option of getting a cash advance, which might seem like a convenient way to get cash in a pinch. However, cash advances come with very different terms than regular purchases.
Why it hurts: Cash advances typically incur a high upfront fee (e.g., 3-5% of the amount advanced) and start accruing interest immediately at a rate that is often much higher than your purchase APR. There’s usually no grace period. While not directly dinging your score like a late payment, frequent use of cash advances can be seen by some lenders as a sign of financial distress, and the high costs can make it harder to pay down your balance.
What to do: Avoid cash advances if at all possible. Understand the terms and fees fully before considering one. They should be reserved for true emergencies when no other options are available. It’s far better to have an emergency fund set aside to cover unexpected cash needs.
13. Ignoring an Ex-Spouse’s Debt on Lingering Joint Accounts
If you had joint credit card accounts with a former spouse, it’s crucial to ensure these are properly handled after a divorce or separation. Even if a divorce decree states that your ex-spouse is responsible for a particular joint debt, you are still legally liable to the creditor as long as your name is on the account.
Why it hurts: If your ex-spouse makes late payments or defaults on a joint account that still bears your name, those negative actions will damage your credit score just as much as theirs. Creditors can still pursue you for the full amount.
What to do: As part of your divorce or separation agreement, aim to close all joint accounts. If an account cannot be closed (like a mortgage), try to have it refinanced into one person’s name. If you must remain on a joint account, monitor it very closely. Obtain your own login if possible, or ensure you receive statements. This is a tricky area of financial mistakes that can have long-lasting consequences if not managed proactively.
Building and maintaining a good credit score is an ongoing process, but it’s well within your reach. By understanding these common pitfalls and taking proactive steps, you can protect your hard-earned financial reputation. Remember, your years of experience have equipped you with wisdom and diligence. Applying that to your credit habits will empower you to keep your score healthy and working for your benefit. Don’t hesitate to seek further credit card advice from non-profit credit counseling agencies if you need personalized guidance. You’ve got this!
