10 worst credit card mistakes to avoid in 2021

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Tomorrow is New Year’s Eve, which means 2020 is almost behind us (Thank goodness!). Let’s hope all the challenges and craziness will stay in 2020, and 2021 will give us all a much-needed break.

You know what else we should leave in the passing year? Misusing our credit cards.

A credit card can be such a wonderful financial tool. It can help you build credit, give your budget some breathing room and earn you rewards. But if you’re not managing your credit card usage correctly, the result can be quite the opposite.

To avoid that, let’s look into common credit card habits you’re going to want to leave in 2020.

Here are 10 of the worst credit card mistakes to avoid in the new year.

Are you growing your credit and have a question for Ana? Drop her a line at the Ask Bankrate Experts page!

1. Paying late

Let’s start with the worst one. Late payments are some of the worst things that can happen to your credit, and they stay on your credit report for seven years. That’s a long time to pay for a credit card mistake.

The more late payments you have, and the longer the delinquency, the more your scores will drop. And if you wait long enough, your card will be charged off and your account will be sold to collections. (Been there, done that.)

Avoid that at all costs. If you’re worried that you’ll forget the due dates, you can set up reminders or automatic payments. Believe me, your credit will thank you!

2. Making only minimum payments

It goes without saying that you should make at least minimum payments to avoid making mistake #1. However, paying only the minimum amount due is also a sure way to bury yourself in credit card debt for a long time, especially if you’re running balances in thousands of dollars. Not to mention, you’ll pay a painful amount in interest, unless you’re in the introductory period of your 0 percent APR credit card.

3. Running high balances

It’s also a bad idea to carry a high balance or max out your card, and not just because of expensive interest charges.

Your credit utilization ratio—how much of your credit line you’re using—is a crucial credit score factor. If it’s over 30 percent, it can negatively impact your credit score. Besides, potential lenders checking your credit report may be wary of this kind of financial behavior, as they may see it as a sign you’re not managing your debt responsibly. Let’s not give them an opportunity to make such assumptions.

4. Not keeping an eye on transactions

Make it a habit to check on your credit card activity regularly, whether by visiting your online account or reading your billing statement. If you see a charge that you know you haven’t made, it can be a sign of fraudulent activity which can get very expensive to ignore.

Additionally, your billing statement is a good source of information—for example, if there are changes to your credit card terms, you’ll find them there.

5. Not knowing your credit card terms

Speaking of your credit card terms—you should stay on top of them. I understand that they’re not exactly a fun read, but it’s also not fun being hit with unexpected fees. The fine print will give you an idea of introductory rates, balance transfer fees and other kinds of charges you can expect in certain cases.

For example, if you have a 0 percent APR card, that doesn’t mean you’ll never pay any interest on it. That percentage rate is introductory, and it’s best to pay off your balance in full before it expires to avoid being charged the regular purchase APR.

6. Choosing a card that doesn’t fit your lifestyle

Not all credit cards are created equal, as they serve different financial goals. If you’re getting a new card, I recommend diving into research to find the best option.

For example, if you’re new to credit, look into student cards or secured credit cards. The latter might not be exciting, but even in this category, there are different (and better) choices to make. For instance, there’s barely ever a good reason to get a secured card that charges an annual fee.

If you want cash back rewards, there are cash back cards for all kinds of spenders. Same with travel: Some travel cards charge high annual fees and offer impressive luxury perks, while others are more affordable and better suited for casual travelers.

Know why you’re getting a card and take this matter seriously. Signing up for a credit card is a financial commitment, so make sure you’re well-matched with your new plastic.

7. Overspending on your credit card

I’m not one to tell you how to spend your money. I mean, I can drop over $100 at a bookstore and call it an “essential” expense. What I do want to tell you is to treat your credit card funds with care.

I know it can be easy to lose track of your credit card spending since that money isn’t in your bank account and you can repay it later. So why not buy all those awesome things you want? That’s a dangerous path to walk, my friend. I know because I have walked it and it led to a charge-off.

Another easy way to overspend is chasing rewards. Earning rewards should be about getting something extra while doing your normal shopping. Otherwise, you’re not really gaining anything.

Think about it: If you normally spend $1,000 a month on your card and it earns you 1 percent cash back, you get $10 in rewards. If you spend $1,500, you’ll get $15, which, of course, is a whopping $5 more, but you’re also spending $500 more than usual. You see what I’m getting at?

8. Applying for too many credit cards at once

Credit cards can be amazing for your credit and overall financial health, but don’t rush to get all the cards you want at once. Each card application triggers a hard inquiry, which can knock a few points off your credit score. One hard inquiry won’t do much harm, but multiple ones do add up.

Plus, lenders may see such behavior as a red flag, as they may assume you’re seeking access to multiple lines of credit at the same time due to financial distress. That’s why it’s best to be strategic with your credit card applications and space them out over time.

9. Canceling a credit card

After everything I’ve told you, you may feel like credit cards are too much of a bother. Or maybe you’ve already been thinking about getting rid of your credit card. But wait, there are so many better things to do with your unwanted credit card than cancel it.

The reason why you should avoid closing your credit card is that doing so will shrink your overall credit limit and increase your credit utilization ratio, significantly hurting your credit. Instead, you can request a product change from the same credit card issuer to get a product that better matches your financial needs.

For example, if it’s an annual fee card that doesn’t bring much value, try to downgrade to a no-annual-fee option.

10. Not requesting credit limit increases

This leads us to the last mistake on our list. Higher credit limits bring lower credit utilization, given your spending stays the same. I recommend requesting a credit limit increase for each of your cards once a year, unless your credit card issuer increases your credit line automatically. This way, your credit will be getting regular boosts, and your budget more flexibility.

New year—new credit habits

Now that you know what not to do with your credit cards, you can be on top of your credit game in 2021. All that’s left to do is find the right credit card for that purpose—don’t forget to check CardMatch™ to do just that.

Written by
Ana Staples
Credit Cards Reporter and Young Credit Analyst
Ana Staples is a reporter for Bankrate and an expert on all things credit basics and personal finance for the younger generation.