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:
Transfer to Travel Partners
Pay with Points (Amazon or PayPal)
Apple® Ultimate Rewards Store
Pay Yourself Back
Chase Travel Portal
Let's compare Cashback vs Pay with Points vs Pay Yourself Back. With Cashback, each point is worth 1 cent ($0.01). Pay with Points (Amazon or PayPal) provides a value of 0.8 cents ($0.008) per point. With Pay Yourself Back, the Chase Sapphire Reserve® has a redemption value of 1.5 cents ($0.015) per point.
Now, let's pretend we have 100,000 Ultimate Rewards® Points and plan to redeem those points to pay for an Airbnb expense. By using Pay with Points, you would be able to redeem 100,000 Ultimate Rewards® Points for $800 worth of Airbnb gift cards—the worst play in this scenario. By using Cashback, you would be able to have $1,000 transferred to your bank account—which you could use to pay your Airbnb bill. What about Pay Yourself Back? With the Chase Sapphire Reserve®, you could "erase" $1,500 of your Airbnb charge from your statement!
"Redeeming your credit card rewards strategically can lead to hundreds—or even thousands—of extra dollars.
The aforementioned example demonstrates the different options you have to redeem your points—and why you want to avoid the trap of redeeming your Ultimate Rewards® Points—or other Flexible Points Currencies—in an undesirable manner. Sure, $800 worth of Airbnb gift cards will go a long way, but $1,500 is much better! The Pay Yourself Back redemption worked out much better than the Pay with Points or Cashback redemptions.
You can get even more value with Transfer to Travel Partners; it is a fixed 1:1 point transfer to any airline or hotel partner. The actual value of the transfer is determined based upon the redemption of the Award Ticket/ Stay compared to its cash value. For example, I get over 2.0 cents per point when transferring my Ultimate Rewards® Points to World of Hyatt for an Award Stay. This could potentially transform 100,000 Ultimate Rewards® Points into a value of over $2,000!
This is why it is beneficial to seek the services of a Credit Card Miles & Points Consultant. They will be able to assess your personal situation, review your travel goals, and help you redeem your miles/ points for an Award Ticket/ Award Stay in a strategic manner.
4. Not Using a Credit Card at All
We are all creatures of habit. Perhaps you only use your debit card when making purchases—and it's been that way for years. If you fall into this scenario, you may be losing out on thousands of dollars every year.
Granted, there may be legitimate reasons why you would not want to use a credit card. It is important that an individual considering using a credit card use it responsibly. There are essentially two aspects to responsible credit card use:
Pay the outstanding balance in full on or before the due date; and
Don't use your credit card to buy an item you normally wouldn't purchase with cash on hand.
By adhering to these two points, you will avoid paying interest and maintain healthy spending habits. In addition, you may qualify for some lucrative credit cards with awesome sign-up bonuses and generous category multipliers! In other words, you will have more money in your pocket!
An example of a credit card that has no annual fee, a bonus of 20,000 Ultimate Rewards® Points, 5X quarterly bonus categories, and a 0% intro APR for 15 months is the Chase Freedom Flex℠. It is regarded as one of the best no-annual-fee credit cards. You can learn more about this card in the following post: Chase Freedom Flex—A Remarkable No Annual Fee Card! You can apply for this card here! By using this credit card as opposed to a debit card, not only will you receive rewards but you will also have other benefits that don't typically come with a debit card—such as Purchase Protection and Cell Phone Protection.
Learn more about the value of using a credit card for your purchases in the following post: Why You Lose Money When Using a Debit Card.
5. When Traveling Internationally
When traveling to another country, it is a common practice to use a combination of cash and credit cards to make purchases. Not everyone will accept your credit card as a form of payment; some transactions will need to be via cash. You will need to determine how much cash to keep on hand—if it's safe to do so. You will also need to decide if you will use any foreign ATMs to withdraw funds from your bank account.
One thing you do not want to worry about is foreign transaction fees! A lot of credit card products carry a foreign transaction fee of ~3%. Make sure to use a travel credit card that has a 0% foreign transaction fee—such as the Chase Sapphire Preferred® Card or the Chase Sapphire Reserve®. This is another reason why you should seriously consider a premium travel credit card if you will be engaged in international travel.
Another item to consider when traveling internationally is to reject the dynamic currency conversion offered by the merchant when using your credit card for a purchase. Dynamic currency conversion refers to an international merchant converting the charge from the local currency to your home currency. When this happens, inflated exchange rates and high fees can be passed on to you. This is why you will want to reject this service—even though it is nice to know the cost in your home currency.
Finally, be cognizant of ATM fees. Even though you may use a credit card with a 0% foreign transaction fee, this does not apply to ATM withdrawals. Typically, you will pay a fee assessed by your credit card issuer and the local ATM. The actual fees you will be charged could be a flat rate or a percentage.
There is a way to get around this—open a Charles Schwab Bank High Yield Investor Checking® account. This is a great tool to have when traveling; there are unlimited ATM fee rebates, no monthly service fees, and no minimum balances to carry! When you open an account, a Schwab One® brokerage account will simultaneously be opened as well. However, you do not need to "use" the brokerage account. I set up my account in less than 10 minutes. I like the peace of mind of having another bank account that can be used internationally that will reimburse me for all of my ATM fees. You can apply for this account here!
The Bottom Line
By avoiding these five credit card mistakes you will save yourself a number of headaches—while padding your bank account in the process.
Do you feel overwhelmed with all the options available when it comes to redeeming your miles & points? Would you like some assistance to get you started in the right direction? You will benefit from the services of a Credit Card Miles & Points Consultant. You will be assisted with regards to earning miles & points through credit card use and redeeming those miles & points for Award Travel. Or, feel free to use any of our Award Travel Tools online. Get started today!