Today, more than 189 million Americans have credit cards.  According to creditcards.com, a whopping 23% of adults added credit card debt during the pandemic.  There are a lot of benefits to having a credit card, like being able to pay for purchases when you don’t have cash or earning rewards on every dollar you spend.  On the other hand, it is also very easy to fall into credit card debt.  Making late payments, overspending, or taking cash advances can all lead to trouble.  Not only will this put you in a bad financial position, but can be detrimental to your credit.  Therefore, it’s very important to learn good credit card habits early on in order to avoid costly mistakes later.  Here are some of the bad credit card habits you must try to avoid at all costs.

Bad credit card habit #1:  Not Reading Your Credit Card Statement

It’s the holy grail of mistakes.  Your credit card statement contains crucial information you MUST read; current due date, balances, minimum payment, how interest will be applied, and other credit card fees you should be familiar with.  Card issuers are required by law to send your monthly credit card statements at least 21 days before your payment due date, by mail or email.  Furthermore, you may even find fraudulent transactions or incorrect payments on your accounts.  If you never look at your credit card statement, you will never find these mistakes.

#2.  Making late payments

Payment history makes up 35% of your credit score, so even one late payment reflects negatively.  Not only will you be charged a late fee, your interest rate can increase, credit scores drop, and the late payment added to your credit report.  To avoid making late payments, set up automatic payments through your credit card issuer.  Late payments can affect your credit for months, and even years.  Knowing of this consequence should be enough to help you break this bad credit card habit.  Making on-time payments is one of the best ways to improve your credit scores.

#3.  Overspending

Overspending on a credit card is very easy.  A good rule of thumb is to buy only what you can manage to pay back in full every month.  Unfortunately, some people tend to think credit cards are used to purchase things you normally cannot afford.  They fail to remember that a credit card is simply a loan.  As a result, this leads to debt and bad credit.  Always consider your budget as you make purchases.  Let your current balance influence how you spend, and not your credit limit.

#4.  Taking out Cash Advances

Some credit cards issuers allow cardholders to withdraw cash.  This is one of the costliest credit card transactions.  First, cash advances typically come with very high interest rates and a cash advance fee.  The fee can be charged as a flat rate or a percentage of the cash advance.  Second, there is no grace period.  That means interest starts to accrue as soon as the transaction is over.  Third, in addition to the cash advance fee, you will be charged an ATM fee for taking out the cash.  The only way to reduce interest on a cash advance is to pay it off immediately.  Nevertheless, your credit card should NEVER be a source of cash.

#5.  Applying for More Credit Cards

You should never apply for a credit card you do not need.  Understandably, sign-up bonuses, like the Chase Sapphire Preferred, and 0% interest rate promos are inviting.  But credit cards are loans which need to be paid back, so never set yourself up for bad debt.  Moreover, when you apply for credit, a lender will request to do a ‘hard pull’ or hard inquiry on your credit report.  Hard inquiries impact your credit report and can account for up to 10% of your credit score calculation.

#6.  Making Minimum Payments

In all honestly, you should try to make minimum payments if you cannot afford to pay your balances in full.  This is the lowest amount you can pay on your balance in order to avoid a late payment penalty and keep your account in good standing.  Your credit card statement will tell you how the minimum payment is calculated.  However, because of compounding interest, paying only the minimum will cost you more in the long run.  Try to pay off at least a bit more than the required amount.  For instance, if your minimum balance is $40, try to pay at least $50.

#7.  Not Using Your Credit Cards

This sounds counterintuitive, but keeping your credit card accounts active is good for your credit score.  Using FICO scoring, the length of your credit history accounts for 15% of your credit scores.  Inactive credit cards can also be closed by the issuer after a certain period of time.