Top 9 Credit Card Mistakes to Avoid in 2012

By Michal Cheney

We all know that there are pitfalls in the world of plastic. But really…who doesn’t have a credit card these days? For some, this purchasing ritual presents only a means to an end. For others, it is a means to debt and disaster. Here are a few credit card mistakes to avoid this year so you don’t end up with the latter.

#1. Getting Tricked by Intro Rates & Balance Transfers

Even if this is your first card, be sure to shop around for the best card for you. Cards that promise a low interest rate or 0% balance transfers come with plenty of small print. Be sure to read it.

The promotional period can vary from 6 months to a year, but your payment habits will determine whether that can change within the promotional period. If you make a late payment or don’t pay the minimum amount, this percentage rate can change drastically.

If you are shopping for a second (third or fourth) card remember this: Having too many cards and jumping around to benefit from transfer offers can signal to credit reporting agencies to lower your credit score. Too many open accounts are a red flag to lenders who wonder what would happen if you start maxing out your cards.

#2. Not Taking Advantage of Credit Cards with Rewards

Many of us are lured to card companies with the promise of rewards. Some of the best credit cards offer rewards in the form of cash back, airline miles and points that are redeemable for gift items, gift cards, etc. In order to benefit, you have to spend, and the more you spend the more rewards you get.

For instance, a card offering 5 percent cash back on purchases will have stipulations. These stipulations depend on how much you spend and are often set up in a tiered structure. If you don’t spend enough, you may only get 1 percent and so on. Also, not all purchases may meet the criteria for these cash back dollars. Read the Conditions and Exclusions on the offer. Don’t chase a high cash back amount with excessive spending.

On the flip side, if you are disciplined, then by all means use credit cards with rewards and accumulate your points. A huge mistake would be to not cash in the rewards you have earned. They’re yours, take them!

#3. Ignoring Annual Fees

On the other hand, some cards with generous reward programs also charge annual fees for the privilege of accruing these reward points. You need to weigh the benefits of rewards vs. fees and be aware of when charges will appear on your account. Not knowing when your account will be charged for the annual fee could put you over your credit limit.

#4. Caving in to Instant Savings

A store credit card may also sound like a great idea if you are standing in the checkout line with a pile of merchandise. The cashier may suggest you sign up for an account to take advantage of a discount on your first purchase, as well as the promise of future promotional discounts. These accounts generally come with a very high APR and are rarely worth the short-term savings.

#5. Carrying a Balance

There is really not much to say on this subject because it is so straight forward. Clearly, the most fundamental way to avoid costly interest charges is to pay off your balance every month.

Realistically, the interest rate on your card does not come into play unless you carry a balance. However, it has been my experience that even carrying a zero balance does not mean your APR can’t be raised. Read your statement to see if there are increases on the horizon. Don’t be afraid to call them to question this increase and ask to keep your current rate. If they decline to help, look around for a new card.

#6. Making Minimum Payments

So you don’t pay your entire balance–once you start carrying over a balance, the mindset of making a minimum payment is the first sign that you are in trouble. In case of an emergency, making the minimum payment may be feel like an easy solution, but don’t make it a habit.

If at all possible, at least pay more than the minimum even if you can’t pay the entire balance. For instance, if the minimum payment is $100, pay $150–or even more. Set a goal to get out of this cycle. You can use the Federal Reserve Calculator to shed light on what can be done to your debt by increasing your minimum payments. It may surprise you.

#7. Making Late Payments

Plan ahead because this will always cost you. There is really no excuse for making late payments as credit card companies send statements 21 days prior to the due date. Don’t throw your statements in a pile! Open it upon receipt and review the charges for accuracy.

If you pay by check, send your payment in plenty of time to allow for delivery, taking into account postal delivery holidays and other factors that may impact delivery time. If you are close to the due date, you can also make a payment by calling your card company and transferring from your bank account. Of course, online payments are always an option.

Remember, you will be charged a substantial fee ($35 or more) for a late payment and it can raise your interest rate significantly. Payments made more than 30 days late will be reflected on your credit report.

#8. Exceeding Your Credit Limit

When making a purchase that puts you over your credit limit, your card company now gives you the option of authorizing the transaction. These extra purchases will carry a significant fee. Bottom line: You are paying for the privilege of not being declined.

Be aware of your balance. If you don’t have it, don’t spend it. Over-limit purchases also affect your credit rating.

#9. Taking Cash Advances

Taking cash advances, other than in a rare emergency, is a bad, bad idea. In this age of instant gratification, taking a cash advance is the worst possible pitfall of carrying plastic. These advances result in a fee for the transaction and a higher interest rate than for purchases (accruing instantly I might add).

If you find yourself in an emergency situation or if you have already gotten yourself in this position, make it a priority to pay it off as quickly as possible or it will cost you dearly.