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Avoid These Five Mistakes With a Credit Card!
Updated: Mar 17, 2022
We have all made financial mistakes before. Contrary to popular belief, experience is not the best teacher. In other words, we can learn from the experience of others—whether good or bad—and go in a direction that benefits us personally.
Let's dive into the world of credit cards and discuss five mistakes you want to avoid! By navigating successfully through these five credit card "minefields" you will protect yourself from financial harm. Let's get started!
All opinions and reviews expressed herein are the author's alone and have not been reviewed or approved by any credit card issuer, airline, bank, hotel chain, or other entity. Some of the credit card offers and links appearing in this article are from companies from which we may receive commission or a referral bonus when you click on the link. You do not need to use our links but we appreciate it when you do—it helps support our website!
1. Missing or Late Payment
Payment history is the biggest factor that goes into your credit score. According to Experian, a 30-day late payment reported by your creditor will remain on your credit report for seven years. Ouch. Even worse is when it turns into 60, 90, or 120 days late—or missing the payment altogether. If this behavior is repeated, it can lead to a poor credit score.
Not only does your credit score take a hit, but you also have to deal with a late payment fee from the credit card issuer. This could also cancel out the promotional interest rate and other rewards—even large bonuses—you would otherwise qualify for.
A survey of 5,000 United States adults conducted by Credit Sesame revealed the tangible consequences of having a poor credit score. 50.3% said they were unable to buy a home; 28.1% indicated they could not rent the apartment they wanted; 49.5% stated they were unable to qualify for an automobile loan.
And then there were the emotional aspects of having a poor credit score. 48.8% said they felt worried; 45.9% felt ashamed; 29.8% stated they were angry, and 15.9% indicated they were confused.
How can you be proactive and avoid the pitfall of missing or late payments? Try the following:
Set up an automatic reminder/ alert with your credit card issuer to text and/or email you when your next payment is due.
Set up automatic bill payments with your credit card issuer to deduct a monthly payment from your bank account.
Add your personal reminder/ alert of your due date to your personal calendar.
What should you do if you have a poor or bad credit score? Although it may take time, you can improve your credit score! A good starting point is to apply for a credit card to demonstrate to potential lenders your ability to make all of your payments on time. You'll be able to build credit, practice good credit card habits, and prove your creditworthiness over time. However, you may need to settle for a "less-than-average" credit card.
If you are looking to build your credit, an unsecured credit card for you may be the Reflex Mastercard®. Consider this card a "gateway" to getting approved for other credit cards in the future that offer rewards and other benefits. You can apply for this card here!
If your credit score is below 580, you may need to apply for a secured credit card. This is a type of credit card that requires a cash deposit as collateral. One excellent secured credit card to consider is the Platinum Secured from Capital One. A minimum deposit of $49, $99 or $200 is required and it provides the path to an unsecured credit card. You can apply for this card here!
If you currently have a credit card balance, feel free to use our Credit Card Calculator. It will determine how long it will take to pay off your balance based upon your monthly payment amount or the monthly amount required to pay your balance off within the selected number of months.
If you want to learn more about how to improve your credit score, see the following post: Do You Want a Good Credit Score?
2. Selecting the Wrong Credit Card
This is a mistake I see all too often—selecting a credit card that doesn't offer a lot of rewards or benefits. In other words, leaving money—hundreds or even thousands of dollars—on the table.
Why does this happen? Although a number of factors come into play, oftentimes, it is just a matter of not understanding the perks that come with a specific credit card product. This includes sign-up bonuses, rewards, anniversary benefits, statement credits, etc.
Not all credit cards are created equal.
To help with this confusion, I have created a Credit Card Selector Calculator. It uses a proprietary algorithm that determines the best credit card in our database based on your spending habits. It will calculate a monetary value for your first year of use. This will allow you to select a credit card that will give you the most bang for the buck!
In my opinion, the best beginner's credit card for Award Travel is the Chase Sapphire Preferred® Card. With a welcome bonus of 60,000 Ultimate Rewards® Points and enhanced rewards, this is an awesome card! You can read more about this credit card in the following post: Chase Sapphire Preferred—The Best Credit Card Just Got Better! You can also apply for this card here!
Generally, you will want to avoid store credit cards. An exception may be if you spend a lot of money at one specific retailer—such as Amazon. Why should you generally avoid these types of cards? It takes up a valuable slot in your credit card portfolio—which could prevent you from getting a better credit card.
Always consider the opportunity cost when deciding which credit card product to apply for. What is the definition of opportunity cost? According to Oxford Languages, it is:
"The loss of potential gain from other alternatives when one alternative is chosen."
Opening a store credit card could cost you the potential gain from another credit card product that could bring you much more value. For example, if you were offered two jobs, with one paying $50,000 per year, and the other one paying $25,000 per year, selecting the latter could result in an opportunity cost of $25,000 per year.
3. Redeeming Your Rewards For Cashback
Many credit card issuers market their products to draw attention to cashback redemptions. Granted, redeeming your credit card rewards for cashback is not always a bad idea. In some situations, that may be the ideal use of your rewards.
Nonetheless, cashback redemptions do come with a caveat—other types of redemptions could be much more valuable!
Let's use Chase as an example. Their "currency" on their line of selected credit card products is known as Ultimate Rewards® Points. Out of all the credit card issuers, these may be the most valuable rewards to earn! Ultimate Rewards® Points are Flexible Points—they can be transferred to 14 partners.
Chase allows you to redeem your Ultimate Rewards® Points in the following ways:
Cashback
Transfer to Travel Partners
Pay with Points (Amazon or PayPal)
Apple® Ultimate Rewards Store