Five ‘rookie mistakes’ with credit cards and what to do instead

Credit cards are a fairly ubiquitous part of most Americans’ personal finances. In fact, according to a recent study by The Ascent, 80% of us have at least one. It’s easy to see why credit cards are so popular: They’re a safe and convenient way to pay for purchases, and many of them earn you cash back and rewards for your spending. Plus, you can easily build credit with a credit card.

Unfortunately, credit cards can also have some drawbacks, and if you’re not careful, you can get into debt on your credit cards or hurt your credit score. Whether you’re new to the world of credit cards or just need a little introduction, here are five mistakes you don’t want to make.

1. Carry a balance

Unless you have a credit card, you can transfer a balance on your credit card from month to month. However, this is not a good idea in most circumstances. If you have a credit card with a 0% introductory APR financing offer and you’ll be able to pay off your balance in full before interest is charged, that’s okay. But under normal circumstances, credit card interest is very, very expensive; As of this writing, the average APR for a credit card is 24.72%, according to Forbes.

Do this instead: Try to pay off your entire credit card balance each month. It’s good to have the mindset to remember that credit cards are borrowed money and try to only charge what you can afford with your own money. Some people pay off their credit cards monthly, but I try to bring mine down to $0 each week; it is much better for my own peace of mind.

2. Make only the minimum payment

When you only make the minimum payment on your card, you’ll end up carrying some of your balance down, which means, yes, those expensive interest charges we just discussed. You should be careful with this even if your card has 0% APR for a period of time. In this case, the card issuer will also give you a minimum payment, but don’t be fooled! Instead, do the numbers yourself.

Let’s say you bought a new washing machine for $800 and you have 12 months of 0% APR. Your card issuer says your minimum payment is $40. But paying just this would leave you owed $320 when the card starts charging interest. Instead, divide that $800 by 12 months, and you’ll have your actual minimum payment: $66.67.

Do this instead: Again, paying off your balance in full every month is ideal, but if you can’t, try to pay more than the minimum due to get out of debt as quickly as possible. And do your own numbers for a 0% APR card to ensure you make a minimum payment that gets you out of debt before interest is charged.

3. Using too much of your credit limit

If you have a credit limit of $5,000, you can spend that amount on the card, right? Technically, yes, but for the benefit of your credit score, no. Your credit utilization ratio is a large part of your credit score. This is the percentage of available credit you are using at any given time and represents 30% of your FICO® Score. To keep your score in good shape, it’s best to keep your credit utilization ratio below 30%.

Do this instead: Don’t go over 30% of your credit limit, if you can avoid it. In the case of your $5,000 credit limit, that limits you to just $1,500.

4. Pay late

Another major credit score issue is paying the bill late. Your payment history accounts for 35% of your FICO® Score, and again speaking from experience, making all your payments on time, every month, can save your credit score even if you’re in debt.

Do this instead: If you’re having trouble remembering when your payments are due, set an alert on your phone or do what I do. Buy a wall calendar, hang it where you can see it, write all your monthly bills on it, and then check them off as you pay them. It’s old school, but it works.

5. Cancel old credit cards

You might think that if you’re not using a particular credit card, you can cancel that too. Not so fast! Closing an old credit card account can affect your credit score eventually (accounts in good standing stay on credit reports for 10 years), because the length of your credit history is also a factor in calculating it: it’s 15% of your FICO score. ®. I canceled an old card earlier this year, but I have excellent credit and luckily only saw a two point drop in my score. If your credit score is poor or fair, it’s best to keep the card to avoid the shock.

Do this instead: Unless there’s a real reason to cancel an old credit card (perhaps it has an annual fee, and if you’re not using the card, it’s certainly not worth keeping paying), it’s best to keep it open. Maybe make a small purchase occasionally to keep the account active.

Credit cards can be an extremely useful financial tool, so it’s worth taking the time to learn how to use them the right way. Don’t worry if you’ve already been making these rookie mistakes: You’re never too old to learn a few new moves in personal finance.

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