Editor’s note: This is a recurring post, regularly updated with new information.
Credit cards can make your life easier in many different ways when you use them responsibly. A well-managed credit card can help you build good credit, give you a valuable sign-up bonus, offer you consumer protection and help you travel the world courtesy of the points and miles you earn along the way.
Yet despite the many potential benefits, there are certain mistakes you’ll want to avoid where credit cards are concerned. Fortunately, you can learn from the experiences of others when you get your first credit card and try to steer clear of those same negative situations.
Here are five of the top mistakes people make when they get their first credit card, along with tips on avoiding these blunders yourself.
Paying late
One of the biggest mistakes you can make in credit card management is paying your bill after the due date. Late payments on credit cards could trigger several negative consequences, including late fees and having the card issuer increase the annual percentage rate on your account to the penalty interest rate.
If you fall 30 days or more behind on your payment, your credit card company could report your account as late to the credit bureaus: Equifax, TransUnion and Experian. Late payments can remain on your credit report for up to seven years, potentially damaging your credit score. If you fall far enough behind on your credit card payment, your card issuer may opt to close your account.
Related: When you should (and shouldn’t) worry about a credit score drop
Not paying the full balance
Another blunder you want to avoid when you open your first credit card is paying less than the full balance on your account each month. Paying your statement balance off each billing cycle is one of TPG’s 10 commandments of credit card rewards — and for good reason. This habit can help you avoid paying expensive interest charges. Furthermore, paying off your credit card balance each month may help you protect your credit score.
The relationship between your credit card limits and balances (known as your credit utilization ratio) has a meaningful impact on your credit score. The lower your credit utilization ratio, the better your credit score. A consistent habit of paying off your credit card balances could help you maintain a low credit utilization ratio, especially if you pay off your card balances multiple times each month or before the statement closing date when your card issuer updates the account with the credit bureaus.
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Overspending
If you want to avoid credit card debt and be able to afford to pay off your statement balance each month, it’s critical to avoid overspending on your credit card account. However, if you’ve spent your whole life up to this point using cash and debit cards, it might take some practice to adjust to how credit cards work (at least, from a budgeting perspective).
Unlike a debit card, you can’t “see” when your credit card goes into the red (meaning you’ve spent more than your budget allows you to pay off each month). On a positive note, there are numerous budgeting apps you can use to track your spending so you can enjoy the perks that credit cards have to offer without taking on the burden of credit card debt in the process.
Only making minimum payments
Whether you’re a new credit card user or a seasoned pro, paying just the minimum amount due on your credit card bill is another critical mistake to avoid. In July 2023, the average credit card interest rate on interest-assessing accounts is over 22%, according to the Federal Reserve. So, if you revolve an outstanding balance on your account from one month to the next, your debt levels have the potential to skyrocket in a hurry.
Being in credit card debt can cost money in hidden ways as well. Not only could you pay hundreds or thousands of dollars over time in extra interest charges from revolving credit card debt, but you also risk damaging your credit score. Lower credit scores can lead to higher interest rates on loans and credit cards, making it more expensive to borrow money in the future.
Getting a card without rewards
As someone new to credit and still working to establish a good credit score, it can be difficult to qualify for top-tier rewards credit cards. Issuing banks often require applicants to have an established credit history and a solid credit score to be eligible for premium rewards credit cards. Yet there are many credit cards available to people just starting in the credit card space, and it’s often possible to find options that offer some form of rewards.
When you start your credit-building journey, you might need to consider mid-tier credit cards with lower annual fees and moderate sign-up bonuses. Nonetheless, the rewards you can earn on your everyday spending can still be miles ahead (pun intended) of the debit card or cash you would otherwise be using to pay for your next transaction.
Related: Credit vs. debit cards: Which is the smarter choice?
Bottom line
With a bit of planning, it’s easy to avoid common credit card mistakes that could cost you money and damage your credit score. Once you feel ready to handle a credit card, reviewing your credit reports and scores before you start filling out applications for new accounts is a good idea. If you discover any errors on your credit reports, remember to dispute them with the appropriate credit bureau.
After you confirm that your credit is in decent shape, you can search for the best credit card for you. Refer back to the above tips once you open your first credit card account to ensure you manage it wisely and set yourself on a path to building even better credit for the future.
Additional reporting by Benét J. Wilson and Carissa Rawson.