Avoiding Common Credit Card Mistakes: Tips from Money Experts

As credit card debt skyrockets to an unprecedented $1 trillion, many consumers are turning to their cards for everyday expenses. While credit cards offer numerous benefits such as convenience, rewards, and cashback bonuses, financial experts caution that mistakes can impact the rewards you earn, the fees you pay, and even your credit score. With the Federal Reserve’s rate hikes pushing credit card borrowing costs above 20%, it’s more crucial than ever to manage your credit card use wisely.

Experts highlight several common missteps that even savvy consumers with strong credit scores can make and offer advice on how to avoid them:

1. Poor Timing for Big Purchases: Timing is essential when making significant purchases. Greg McBride, Chief Financial Analyst with Bankrate.com, advises against making large credit card purchases just before the billing cycle ends. He suggests that making a payment to reduce the balance back to under 10% of your credit line after a large charge helps maintain a healthy debt-to-available credit ratio, which is important for your credit score.

2. Rushing to Cancel a Credit Card: Instead of outright canceling a credit card due to an annual fee, experts recommend downgrading to the no annual fee version to maintain the credit line. Closing a credit card can negatively impact your credit score by affecting your debt-to-available credit ratio. Keeping the credit line intact by downgrading helps avoid this issue.

3. Overlooking Valuable Card Perks: Some credit cards offer valuable perks that could save you money in unexpected situations, such as cellphone damage reimbursement or trip delay insurance. Understanding the benefits your credit card offers can prove invaluable in times of need.

4. Disregarding Reward Redemption Rates: When redeeming rewards, be aware that not all redemptions are equal. Melissa Lambarena, credit card expert at NerdWallet, emphasizes reading the terms and conditions carefully to understand the most valuable redemption options. Store cards, often overlooked, can also provide rewards and discounts.

5. Misunderstanding Deferred Interest: Store credit cards may offer financing options with deferred interest, where interest accumulates in the background. If you don’t pay off the original balance within the promotional period, you’ll be charged accumulated interest from the date of the original purchase. This differs from a true 0% introductory APR offer.

6. Leaving Cards Inactive: Allowing a credit card to remain inactive for extended periods can lead to the card’s closure by issuers. To prevent this, consider putting automatic recurring purchases, such as streaming service subscriptions, on the card to maintain activity.

With credit card debt at an all-time high and the financial landscape continually evolving, understanding these common mistakes and taking steps to avoid them is crucial for maintaining a strong credit score and making the most of your credit card benefits. As consumers navigate the complexities of credit card usage, staying informed and proactive can lead to better financial outcomes in the long run.