Credit Card No-Nos: 9 Bad Habits to Break in 2022

There are several great reasons why you might want to sign up for a new credit card, whether it’s to earn rewards, build your credit or double down on travel points and perks. However, even with all the convenience a credit card brings, there are also risks to consider. 

If you pay a card late or don’t pay your balance in full, you can incur fees and extra interest charges that make your purchases more expensive in the long run, especially considering today’s rising interest rates, fueled by skyrocketing inflation. You could also wind up jeopardizing your credit score, which could make it harder to buy a house or get a loan.

So what are the biggest mistakes well-meaning people commonly make with their credit cards — and what can you do to avoid financial pitfalls? I spoke with experts for their suggestions, and identified some of the most dangerous credit card behaviors.

For more, learn how to get out of credit card debt and why now is the right time to pay off your credit cards.

Paying your credit card bill late

Missing a payment or making a late payment on a credit card is a major no-no. Colleen McCreary, a consumer financial advocate at Credit Karma, says this is the most common mistake people make with credit cards. Your payment history is a major factor of your credit rating and accounts for more than 30% of your overall score, McCreary said in an email.

A late payment is a one-way ticket to ruining your credit, and the ding on your report won’t go away for seven years. Even worse, if your credit card bill remains unpaid, your creditor could sell your debt to a collection agency, which could tank your credit rating.

The best way to avoid late fees is to set a monthly reminder to pay your bill, and at least make the minimum payment. Most credit card companies will also let you set up monthly auto-payments, so you won’t skip a beat. If you’re worried you may not have enough each month to cover an autopayment, remember you can always set it to pay out the minimum, the full balance or a specified amount.

The credit bureau Experian notes that some credit card issuers may provide a short grace period for late payments, while others will mark your payment late as soon as you miss your due date.

If you do pay your credit card bill on time regularly and accidentally miss one payment, call your bank as soon as possible to see if it will offer one-time forgiveness, provided you pay in full at the time of your call. Your bank might refund your late fee and interest, but it isn’t required to do anything.

While some credit card companies may mark your payment late after one day, those late payments are not reported to credit bureaus for 30 days, according to credit reporting company Equifax, If you act quickly to change your issuer’s decision to mark your payment late, you could avoid damaging your credit score. If you’re unable to pay your bill, you can also ask your issuer if it can create a payment plan for you.

Maxing out your credit cards

After payment history, the second biggest factor in determining your credit score is the percentage of available credit that you are currently using. Called the “credit utilization ratio,” this factor is calculated by dividing the amount you currently owe by your total credit limit, or your maximum borrowing potential.

Maintaining a high balance on your credit card compared to your total credit limit will increase your total percentage of credit used and hurt your credit score.

You usually want to keep your credit utilization ratio under 30% for a good credit score, though less is better. A good rule of thumb is to use 10% of your total credit limit and pay it off each month so you’re not carrying a balance. For example, if your credit limit is $5,000, you wouldn’t want to borrow more than $1,500 and ideally $500 or less.

If you find your credit card limit is too low — for example, the amount you want to charge to your card exceeds the total you can charge on a given card — you can always ask your credit card issuer for an increase.

Maxing out credit cards could also cost you big money if you can’t pay off the total by the payment deadline. “The higher your outstanding balance (the amount of money you owe), the more interest you’ll pay, which can make it even more difficult to climb out of debt,” McCreary said.

Making only the minimum payment on your credit card

Your minimum payment is the lowest amount that your credit card issuer will allow you to pay toward your credit card bill for any given month — for example, $50. The minimum monthly payment is determined by the balance on your credit card (what you owe at the end of the pay period) and your interest rate. It’s generally calculated as either 2 to 4% of your balance, a flat fee or the higher amount between the two. 

Making only minimum payments is one of the most common credit card mistakes, according to Katie Bossler, a quality assurance specialist at GreenPath financial wellness. 

Although making minimum payments on time is still far better than paying late or ignoring your bill, paying only the minimum can cause interest to build, making it much more difficult to pay off your balance completely.

For example, if you have a $2,000 balance with a minimum payment of $50 on a credit card with an APR (annual percentage rate) of 14.55%, it will take 56 months (or almost five years) to pay off your debt, and you’ll end up paying a total of $753 in interest. However, if you make a plan to pay the balance off in a year, your payments would be $180, and you’d only pay $161 in interest.

It only gets worse as the APR goes up — at a relatively high but not unreasonable rate of 25%, a minimum payment of $50 would take 87 months (or a little more than seven years) to pay off a $2,000 debt, with a sizable $2,344 in interest payments. Meanwhile, upping the monthly payments to the same $180 would pay off your debt in 13 months, and cost only $281 in interest.

Here’s an example of how making more than minimum payments can save you significant money in interest.