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20 Common Credit Card Mistakes

While it is useful to have a credit card, you should be careful to use it in a wise and responsible manner.

There are many advantages to having a credit card but without the proper use, you can easily become mired in something that has grown out of your control. Follow these credit card tips to help keep you from making very common and typical credit card mistakes.

Table of contents

Credit cards do’s and don’ts

As useful as credit cards can be, anyone making the following credit card mistakes is going to cost themselves money and may even land themselves in some serious financial difficulties;

  • DON’T treat your credit card like it is cash

Your credit card is loaned money and should be treated as such. If you use your credit card like it is an endless supply of cash, you will get into trouble very quickly. You need to remember that is it borrowed money and that each time you use it, you are being charged with interest for the privilege of doing so.

  • DON’T take cash out

If you are stuck in an emergency then taking out a cash advance makes sense and is acceptable. However, if you simply want to go shopping or want to make some frivolous purchases with the money you have taken out on a cash advance then you will be in for a surprise when you receive your next credit card statement. The rates for taking out money on your card are much higher. Not only will you be charged a fee for taking the money out, the interest is calculated at a significantly higher rate than other transactions.

  • DO pay more than the minimum

You will receive your statement each money with details about how much you are expected to pay. This is the minimum payment. It often does not even cover the interest that has accrued from the current month. If you can, pay more than this so you are able to pay off your debt more quickly. If you choose not to, your balance will grow exponentially.

  • DO pay on time

You will receive nasty fees for paying late on your credit card and you will also receive negative marks on your credit report. It is best to pay your card on time each month and if possible, even early. Every time you miss a payment, pay late, or exceed your credit limit, you will be charged a fee, and this is also likely to be listed in your credit history.

  • DO ask for help

Everyone gets into trouble at one time or another. There is no shame in asking for help if you need it. It is very easy to get in over your head when it comes to credit. If you see that you are going down that path, ask for some help as soon as you can so you can rectify the situation as quickly as possible.

Common credit card mistakes

Understand how to avoid the worst credit card mistakes. Use this information to create best practice in your credit card activities.

  • Paying interest

The biggest credit card mistake is paying interest on your credit card. This is money down the drain. You must try to keep your credit card spending within the bounds of what you can completely pay off each month.

  • Making cash transactions

Taking money from an ATM, buying foreign currency or traveller’s cheques, or making any gambling transactions on your credit card are considered cash advances or transactions. You may be charged a fee for these, and you will attract around 20% interest from the moment the transaction takes place.

  • Spending for rewards

Rewards schemes are designed to lure the customer to a certain card, and then to get them spending on it. A major credit card mistake is to spend purely to earn points. If this leads to interest charges, your points value is wiped out.

  • Constantly taking advantage of balance transfers

This is the practice of shifting a debt from card to card to take advantage of 0% balance transfer deals. This behaviour cannot last forever, and banks frown on activity of this sort to the extent that you will end up less creditworthy.

  • Having too many cards

You may think it looks impressive to flash an assortment of plastic every time you take out your wallet or purse, but having multiple cards can be more than a credit card mistake; it can be a nightmare. Not only can you easily lose track of your spending until your statements arrive, but your overall credit limit will have been reduced, meaning other lenders may be reluctant to give you money when you really need it.

  • Making purchases on a balance transfer card

This is one of the most expensive credit card mistakes if you have a transferred balance still to pay off. Any new purchases will sit accruing interest at the standard rate untouched until your cheaper debt is totally paid off.

  • Ignoring personal loans

Larger debts that may take years to pay off may be better handled with a personal loan than a credit card balance transfer, especially if you can’t secure a long enough transfer offer.

  • Failing to compare the market

Only 6% of Australians bother to visit a credit card comparison site when choosing a credit card. Even before you get a credit card in your hands, this credit card mistakes can cost you dear because you will have no real concept of your options and different types of cards and offers available.

  • Avoiding or misunderstanding the fine print

If credit card features were only limited to the offers displayed in advertisements, then we would all be living in a much happier (and cheaper) world. However, these are only teasers and abiding only by the marketing copy will hit your pocket hard.

What do the terms and conditions really mean?

Here are a couple of hypothetical instances where you can fall flat on your face by not reading your terms and conditions.

Enjoy a generous 2.9% p.a on balance transfers for 12 months*

*Balance transfer will cease to proceed if full balance is not paid off each month. Any remaining balance will be reverted to the standard interest rate of 18% p.a.

No annual fee*

*No annual fee when you spend $35,000 or more on your credit card per annum. Standard annual fee of $140 applies otherwise. Excludes first year annual fee.

  • Treating store cards as credit cards

Store cards charge horribly high rates of interest. If you do not clear your store card debt every month, you will be hit very hard. If credit card features were only limited to the offers displayed in advertisements, then we would all be living in a much happier (and cheaper) world. However, these are only teasers and abiding only by the marketing copy will hit your pocket hard.

  • Condemning yourself into balance transfer hell

Balance transfers are without a doubt the saving grace of reducing your credit card repayments – when utilised correctly. The most common scenario people fall into when they become hammered by balance transfers is as follows; you have a high balance on one of your credit cards. You transfer that balance onto a new credit card with a balance transfer offer.

Wanting to reduce your credit card debt/management as much as possible, you cancel your old credit card to only focus on repaying your transferred balance.

Over the period of your balance transfer, a couple of emergencies arise and you fall into financial strain. Without second thought you access your transferred balance credit card and cover the issue.

When a purchase is made on your balance transfer credit card, the transferred balance is essentially ‘locked up’ until the purchase has been paid off. Interest free days are frequently excluded from purchases made on these cards while the introductory offer is being carried out.

The solution? You may want to keep that old credit card instead of shredding it – you never know when an emergency can arise, or the only form of accepted payment for a purchase you want is via credit card.

  • Picking a credit card which doesn’t suit you

Other than competition, there’s a reason there are so many different credit card offers available in Australia – different types will suit different individuals and lifestyles.

Case study

An example which you can regret and end up spending more than necessary.

You own a ‘Gold’ status credit card, which has a high interest rate, high annual fee and a rewards program. You pay your balance off in full, and spend on it regularly. This will compensate for the high interest rate and benefit you with lots of rewards.

However, you never travel internationally, thus rendering your travel insurance and security benefits useless. The cost of these benefits are made up in your annual fee, and therefore you are effectively paying something-for-nothing.
The solution? There are plenty of regular reward credit cards available which allow you to only pay for the features you use.

  • Only comparing credit cards from your current bank

The days where the time you’ve spent with your financial provider becoming an asset are fast dwindling. By avoiding different banks for credit cards, you’re essentially robbing yourself of potentially cheaper cards.

  • Not checking your statements and recent transactions

The ease of credit cards without a doubt is ‘paying with plastic’. If you pay $50 or $200 in cash, you are visually and tangibly spending more money. Pay with plastic and you can bury the price and repayment deep in your mind, and adapt a ‘pay now, worry later’ attitude.

Case study

Act quickly

Recently a staff writer at Credit Card Finder learned first hand the benefit of checking his transactions every couple of days.

“I took a look at my recent transactions online and found out that my most recent $17.20 purchase at a fast-food place also bought an identical debit of $86.40. I was positive that it wasn’t a cash advance, and remember only signing a single $17.20 purchase.”

“The next business day I contacted my bank, (Commonwealth) and explained the issue. I hinted that it could possibly be fraud so they would take the issue as seriously as possible. The woman on the customer service line stated that my dispute would take 6-8 weeks to resolve, and my disputed charge would be cleared from my statement in the meantime.”

“If you delay your dispute for too long, it will become increasingly difficult to pursue and win.” he states.

  • Using plastic to pay for everyday expenses

Nearly half of all Australians use credit cards to pay for necessities like groceries and petrol. Interest free periods make using credit cards convenient without cost, but only if you are spending less then you make each month. Plan your spending so that your card balance never exceeds the amount you can pay off completely, to avoid those costly interest charges.

  • Incurring unnecessary fees

Some of the biggest ways credit card companies make money is by charging fees for things like late payments and going over your credit limit. These credit card errors are easy to avoid by managing your money and paying at least the minimum payment each month with a direct draft to your credit card bill each month.

  • Not paying attention to credit card security

It may seem hard to believe, with all of the talk about credit card security, but around two thirds of Australians have not taken even simple steps to avoid credit card fraud. It is imperative that you pay attention to security measures and protect your account and personal information secure.

Following these credit card tips will make it easy for you to keep your head above water and out of credit card trouble.

Mistakes to avoid when doing a balance transfer

When doing a balance transfer, it’s important you don’t make these common mistakes. Cardholders saddled with high interest payment on their credit cards look to balance transfer deals to alleviate their credit card debt condition. While there are plenty of offers out in the market, it also implies a higher chance of not picking the right offer out from the bunch. Here is a list of the most common balance transfer mistakes you can make, so that you know what to avoid.

  • Not enough research

Some people, eager to get out of their current card agreement, will pick the first balance transfer card that manages to catch their attention. This is one of the simplest, yet most damaging balance transfer mistakes you can make. By not looking hard enough you’ve probably missed out on a much better deal that would have been more suited to your needs.

Simple market research is therefore absolutely imperative before deciding on a particular card. You can take the help of card comparison sites to get an overview of the features and special promotions currently available. Once you’ve narrowed down your choice to a few cards you should take a detailed look at the terms and conditions of the individual cards. Talk to the card issuer if you have to, and make sure you don’t get caught in the fine print trap.

  • Not making the transfer in time

There is usually a small time window to initiate the transfer, usually about a month from the activation of your new card. If you fail to specify the balance to be transferred within that time frame you will lose the opportunity. Therefore it is good idea to mention the balance and previous card details right in the application form of your new card.

  • Transferring to the wrong type of card

If you are transferring your balance to a card with a great reward program or a special cash advance rate, be advised that in most cases you cannot earn reward points while a balance transfer is outstanding. It is also preferable not to make cash advance transactions on this card because of ‘Payment Allocation’ affecting the order of repayments, use a separate card if you have to.

  • Not taking costs into account

Interest charges are not the only cost of a card, you should compare annual fees and other relevant charges to the card while shopping around.

  • Choosing the wrong balance transfer deal

0% or low rate balance transfer cards are good for those who can repay the full balance within a short period of time (the introductory period specified). Life of balance cards on the other hand feature the same low rate of interest which is fixed for the duration of the balance, and is ideal for large transfers that will be gradually paid off over a longer period (e.g. more than 12 months).

Learn to avoid all of the above balance transfer mistakes, and you are on your way to securing the best possible card that fits your requirements and needs.

Critical questions to ask yourself if you own a credit card

  • Do you repay more than the minimum repayment amount on your credit card balance each month?

Have you set an automatic direct debit to repay only the minimum repayment amount on your credit card each month? Every time you see your credit card statement, do you only pay the minimum repayment amount?

If the answer is no, then increase your repayments this month. It will literally save you hundreds or thousands of dollars in interest charges.

By increasing your repayment amount to $163 each month, you can reduce the interest paid to just $613 and reduce your repayment period to just 2 years.

  • Do you carry a balance on your credit card each month?

If yes, do you have a rewards credit card? If yes, scrap it! A rewards or frequent flyer credit card will only benefit you when you if the new rewards value exceeds the cost of the annual fee. Consider a low interest card instead. Or do you have a low interest credit card instead ? There aren’t very many scenarios where you have a credit card balance and it makes sense to have any other credit card besides a low interest card – have a look at this guide to low interest cards.

If no, then do rewards or frequent flyer points interest you? If you have considerable spend levels each month on your card there could be some benefit to considering a frequent flyer credit card. If you don’t want rewards, and you don’t carry a balance each month there are some great cards available that give you the convenience of credit card without charging you an annual fee.

  • When was the last time you did a credit card comparison and switched credit cards?

If the answer is more than 2 months ago, you are missing out. On the 1st of July, the government rolled out a major credit card reform to make it faster and easier to repay your card balance.

There are also huge benefits to new customers who switch. Banks reserve some of their best perks for their new customers, such as 0% interest on purchases, 0% interest on balance transfers or frequent flyer bonus points on sign-up.

Learn to avoid all of mentioned balance transfer mistakes, and you are on your way to securing a card that will be suitable for your requirements.

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