Skip to content

Mastering credit cards: common mistakes you're probably making

Credit cards are a practical way to manage your money and help you stay on top of your finances. But how many of us can say we know how to get the most out of them? Some people avoid using credit cards altogether because of this gap in knowledge. Others take the plunge, but can find themselves a little confused.

One of the best ways to keep any situation simple is to understand the dos and don’ts involved. When it comes to your money, it’s the “don’ts” which most people want to understand. That’s what we’ll be focusing on today.

In this guide, we’ll discuss some of the most common credit card mistakes users tend to make. We’ll also look at some handy tips which you could use to make managing your card easier, as well as how a card could affect your overall credit score.

9 Credit card mistakes to avoid

Not everything in life is black and white. However, when it comes to money management, there tends to be fewer grey areas. While getting the most out of a credit card will vary depending on your situation, mistakes are often a tad more universal. Here are some of the most common missteps users make when paying with their credit card. 

1.   Not paying your bill on time

Most credit cards will have a date by which they want you to make a payment. This tends to be a couple of weeks after you’re given a balance, but could be longer (or shorter). This is something you can check in your account settings, as well as on the balance itself.

Accidentally missing your bill’s pay-by date can have a negative impact on you in a number of ways:

If you do miss a payment, you can reach out to your credit card issuer. Explaining the situation to them, as well as making the payment as soon as you notice, could see the fee waived.

2. Carrying your balance across months or only making the minimum payment

Paying the minimum amount on your card is tempting, and a lot more manageable than having to fork out for some heftier payments. But this kind of credit card use shows a lender that you aren’t able to afford making the payment in full – even if that’s not the case.

By keeping money on your card across months, you’ll also see the amount you have to pay back in interest rate fees rise. By paying off your card in full every billing period, you’ll not only show the issuer you can handle your finances well, but also avoid making any interest payments.

3. Maxing out your credit limit

When you know you have a £2,000 credit limit to play with, it can be tempting to put that money towards things you really want. When you do that, it’s possible to hurt your “utilisation rate”. This is the term given to the percentage of credit that’s actually in use on your card.

A utilisation rate is important, as it’s one of the main factors in improving your credit score. It’s generally recommended to keep your rate below 30%, with the lower the score the better. A recent report from FICO found that the highest achievers for credit scores kept an average rate of just 7%.

If you had a £2,000 limit, that would mean spending just £140 on the card across the month. To hit the 30% mark, you’d need to spend £600 or less.

4. Withdrawing cash on the card

Credit cards don’t work in the same way as debits. You shouldn’t withdraw cash with one, as you’ll be charged a fee for doing so, plus interest on the withdrawal itself. It will also be noted on your credit report, and is something any future lenders can see when making a call about offering you a loan.

Taking out cash can be a red flag to these lenders. It implies, whether rightly or wrongly, that you don’t have enough in your current account to pay for basic expenses. This is a factor that could be considered during any future assessments of your spending habits.

5. Misunderstanding APR and applicable fees

Your fees and annual percentage rate (APR) are useful to know when managing a credit card. They’ll determine what additional costs you might have to pay, or what penalties you could face. They should all be visible on any agreement you’ve signed.

A good approach here would be to understand what each of these terms means. This isn’t a necessity, but it does make understanding where, when, and how much you might have to pay a little bit easier:

  • Annual fee – The price you have to pay every year to use the card
  • Purchase APR – How much interest you’re charged when you carry a balance month-to-month
  • Balance transfer APR – How much interest is paid when you transfer balances across cards
  • Penalty APR – This rate, usually higher than the others, is charged for late payments
  • Late payment fees – The actual penalty itself
  • Foreign transaction fees – Some cards might punish you for making payments abroad (although this varies according to provider)

Knowing what each of these means and how it might affect you could make a big difference to how you think about your card.

6. Spending more than you can realistically afford

Contrary to what some might think, a credit card isn’t a means to treat yourself to big purchases. Ultimately, credit cards exist to show lenders that you’re able to manage money properly. One of the most effective ways to do that is by only spending what you can afford to immediately repay on the card.

Coming up with a detailed payment schedule is one way to manage this. Another could be to assign set bills to the card every month, and then not touch it at all for the rest of it.

Sometimes, emergencies or sudden payments can crop up unavoidably. If that is the case, using a credit card with a low APR can be a handy way to absorb a short-term hit, without large interest fees suddenly stacking up.

7. Applying for too many credit cards

It’s okay to have more than one credit card. In fact, sometimes having multiple accounts can help improve your credit score. That’s because it’ll lower your utilisation ratio, meaning you can spread your spend across a couple of cards.

If you do decide to go down this route, it can be useful to delay applying for a bunch of cards at once. Every time you apply for a card, you’ll trigger a hard inquiry. And while a few of these won’t have much of an impact, too many in a short space can go against you on your credit score.

To make sure you aren’t wasting a hard inquiry on a card which you won’t be approved for, try using pre-approval tools. These will let you know if you’re going to be given a card or not. This saves you time, as well as protecting your score from unnecessary dings.

8. Chasing rewards

Rewards are a fantastic perk when it comes to credit cards. But they shouldn’t be the driving factor in which account you choose. A bonus might seem great on the surface, but, if you can’t afford to make full repayments, you could end up being down money if your interest fees are high.

The bonuses and rewards offered as part of a card can still be something you consider. It’s just that they’re best thought of as the final decision between two cards that you’re weighing up.

9. Not monitoring your transactions

Keeping an eye on what you’re spending is always a clever approach to finance management. That’s just as true with a credit card as it is with your current account. Getting a full picture of what and where you’re spending can help you budget more accurately.

You may find that there are certain expenses which would work better on a debit card. Or it could be that you spot a fraudulent charge more quickly, and quickly let your issuer know. Either way, the more visibility you have on your account, the simpler you’ll find it to manage.

Tips and advice for using a credit card properly

We all use credit cards for different reasons. Making the most of yours will depend on what your motives are. That said, there are approaches to credit card management which will usually set you right. Any of the following could be a constructive way to think about or use your card:

  • Use it for needs, not wants. Try to mentally frame your card as a tool to pay for necessities, not desires. Throwing a large bill on there might be tempting, but it will impact your credit score if you can’t pay it off at the end of the month. A credit card is an extension of your regular income, used to show lenders that you can handle money well. It’s not a tool to make buying out-of-budget items a possibility.
  • Remember your utilisation ratio. Keep a note of your ideal utilisation ratio to hand. This will be a different amount for every card, depending on the credit limit. Having a record of what 30%, 10%, or even 5% of your credit limit is for each card can be useful. This lets you stay on top of self-imposed spending limits.
  • Keep a note of all your statement dates. If you only have one credit card, remembering your statement balance and minimum payment dates is simple. That’s not always the case if you have multiple. Making a note or setting text reminders so that you’re on top of payments is a clever idea.
  • Think of it as a budgeting tool. Allocating certain bills or payments to your credit card is a handy way to budget. It means that you don’t need to worry about finding the money for these bills during the month, just at the end. Remember, it’s best to pay off your balance in full – so try to never put more on there than you can afford.

Is a credit card right for me?

Regardless of what you might have heard, credit cards are not solely good or bad for your finances. They have their merits, as well as drawbacks. Some people benefit from using a card, while others might find it more than they can manage.

If you’re unsure what category you fall into, then weigh up both sides of the debate. Consider the following points when deciding if a credit card is the right option for you.

Benefits of a credit card

  • They’re easy to carry and accepted at most stores.
  • Credit cards are safer than most other options, as it’s easier to refund losses in the case of cybercrime.
  • Paying off your balance each month means borrowing is cheaper, as you won’t face any interest.
  • You’re protected for all costs between £100 and £30,000. This is because of section 75 on the Consumer Credit Act of 1974. That means if you buy something expensive like a holiday, but a travel company goes out of business, you’ll get your money back.
  • Some credit cards offer rewards and perks, such as discounts, cashback, and even air miles.
  • If used properly, a credit card can help to quickly build or recover your credit score.

Considerations when using a credit card

  • If you don’t or can’t pay your balance in full every month, you’ll be hit with high interest payments.
  • Debt can build up slowly to a tough-to-manage point if you can’t make payments.
  • If you miss a payment or carry your balance over, you can damage your credit score.
  • If you exceed your limit or miss a payment, you will be asked to pay additional fees.
  • Credit cards can become expensive when used abroad. You’ll often be given additional fees.
  • Sometimes these cards can feel like “free money”. This can give a card user a false sense of financial security. Over time that could lead to running up hefty bills and debt.

It’s important for you to think about what you want to use the card for, and how well you feel you can manage it. If you still aren’t sure whether you’d be able to safely use one, speak to a financial advisor. They should be able to answer any questions you have, as well as give you an idea of if you're a good fit for one or not.

How does a credit card impact your credit score?

A credit card can play a role in determining your credit score. The clue is in the name, after all. But how much of an impact will it have?

The answer all depends on how you use it. A credit card can have an impact on a handful of credit factors. Understanding how and why it might play a part in determining your score could be useful.

  • Payment history. A late payment can have a major impact on your credit score. This is one of the most important factors which lenders assess. It shows how reliable you are with money that’s being loaned to you. Late or missed payments could see your score drop.
  • Utilisation ratio. This is another key way in which your money habits will be analysed. Credit cards help show how much money you’re borrowing at any one time. The exact percentage you’re using out of your limit is your utilisation ratio. Keeping this low could see your score increase.
  • Length of credit history. The length of your credit profile (or history) shows how long you’ve been managing your finances. Usually, your oldest, youngest, and average credit age will all be taken into account. Closing an account could mean your average age reduces, so think about how it might impact your average length before doing so.
  • Diverse credit mix. Spreading how you manage credit across different account types can also be useful. A credit card is one way to do that. Others include things like regular bill payments, car loans, student loans, or mortgage payments.

A credit card could definitely help make your financial situation stronger. But it needs to be managed properly. Keeping all of these factors in mind could make it simpler to manage your credit card account in the future.

Looking for something else?