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Common Credit Errors

Many people spend a high percentage of their income for payments on credit cards or pay more for borrowed money than they have to. Below is a description of ten common credit card errors:

1. Using credit to pay for nondurable items. Make this error and you may still be paying for an item (such as food or gasoline) long after it is gone or no longer usable.


2. Waiting until the last minute to pay your bill. Try to send in your payment as soon as your bill arrives if you aren't paying the bill in full. Paying early will reduce your average daily balance, which, in turn, will reduce the total amount of finance charges that you will pay.


3. Paying a higher interest rate than necessary. Call the customer service number listed on your credit card statement. Tell them that you have been a satisfied customer, but you have seen several offers for cards with lower interest rates and/or no annual fee. Ask existing creditors to waive your annual fee and lower your interest rate. If you have a good record of making payments, even if it is only the minimum payment, they will often agree. If you don't ask, you won't know.


4. Paying only the minimum payment each month. If you have a credit card with 18.5 percent interest, it will take you more than 11 years to pay off a debt of $2,000 if you pay only the minimum balance due each month. You will also pay interest charges of $1,934, almost doubling the cost of your purchase.


5. Paying the bill late or not paying even the minimum some months. Paying a major credit card on time over several years is the best credit reference you can have and is a major factor that can increase your credit score.


6. Forgetting to keep track of your credit card spending and not knowing your credit card limit. Each billing cycle that you exceed your limit, you can be charged up to a $35 over-the-limit fee.


7. Paying less than the full balance owed on your credit card. Depending upon the amount owed, this practice can cost you hundreds of dollars a year in extra interest.


8. Juggling too many cards. Most people who have their credit under control find that they are able to function quite well with only two or three major credit cards. This makes keeping track of purchases and spending limits much easier. In addition, the more cards you have, the less eager creditors are to give you additional credit.


9. Paying a high interest rate on a credit card for a large purchase when you could have borrowed the same amount from a bank or credit union at a lower rate of interest. Some examples of lower-cost alternatives are home equity lines of credit and secured or unsecured personal loans.


10. Paying for unnecessary services. A common example is high annual fees on credit cards that provide some type of "perk" or payback when a monthly balance is carried. The fees that are paid generally exceed the payback.