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5 Credit Card Mistakes You Should Never Make

woman holding phone and credit card

Credit cards can be a blessing when you use them to earn rewards on travel – and a curse when the interest piles up because you can’t pay your balance off in full at the end of the billing cycle.

Case in point: From 2018 to 2020, the Consumer Financial Protection Bureau estimates that Americans shelled out, in total, about $120 billion each year in credit card interest and fees. That averages out to roughly $1,000 per year for every U.S. household. Some families and individuals paid much more, of course, while others paid less or nothing at all if they carried no debt.

And while credit card debt began declining during the pandemic, it’s on the rise again as more than 175 million people have at least one credit card in their wallet. If you are one of those people or are considering applying for your first card when you turn 21, there are pitfalls you can avoid on your way to building or maintaining a great credit score.

Follow These Tips to Avoid Paying Late Fees and Interest

Don’t take the first card you’re offered.

Shop around and compare before opening a credit card account. Do an internet search and check out your local bank or credit union to see what options are available that best fit your needs. Avoid cards with annual fees out of the gate, and don’t be swayed by flashy offers of cash back unless you read the fine print and figure out how much you have to spend to qualify. If you opt for a rewards card, look for one with no blackout dates.

Don’t make late payments.

Thirty-five percent of your credit score is based on payment history. And because even one late payment can ding your score, it’s best to never be tardy. An easy way to stay on top of making timely payments is by setting up an automatic draft either with your credit card company or your financial institution.

Don’t max out your credit limit.

The less you spend, the better. That means if you have a credit limit of $2,000 and use $1,500, you’re using 75%, which is too much in the eyes of credit reporting bureaus and lenders. Try to use only 10% to 30% of your available credit to establish the best score. Use a debit card or cash for the rest of your spending.

Don’t pay the bare minimum.

When you only pay the minimum amount required by your credit card issuer, you wind up paying tons more than the original amount charged because of interest.That means a $100 dinner tab could end up costing more than twice that amount if you stretch out the payments over months or years. Pay as much as you can above the minimum.

Don’t cancel cards

Don't close the account when you finally pay down a card to a zero balance. Depending on how you cancel your card, your credit score may take a hit, making it harder to obtain credit in the future for loans or other big-ticket items. Instead, keep the account active by using it to make one or two small purchases a month. If keeping the card in your wallet is too much temptation, cut the card up, but leave the account open to make sure your credit score isn’t hurt by a cancellation.

In addition to these tips, you can monitor your credit score through Horizon Bank with CreditAdvisor. Keeping an eye on your score will help you make decisions about new cards, payments, and more. Enroll today in Online Banking!

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