8 credit card habits to avoid

Credit cards can be a powerful financial tool when used wisely. Their benefits include spreading the cost of high-value spending, cashback or rewards, powerful consumer rights protection under Section 75 of the Consumer Credit Act, and even building your credit score.

But too many people fall into credit card traps, such as only making minimum monthly repayments or using their credit cards to withdraw cash, which leads to high charges, expensive interest fees, or both.

Failure to manage your credit card properly can even devastate your credit score – if you miss repayments or can’t pay what you owe, for instance. In severe cases of problematic debt, this could result in county court judgments and even bankruptcy.

Here are eight of the most frequent errors people make and why you need to avoid them.

Missing repayments or paying late

Most credit cards require you to make at least a minimum repayment each month. If you miss a credit card repayment, it is recorded on your credit file for six years.

This could impact your ability to get credit in the future, including things like phone plans or even a mortgage. How significant an impact it has depends on your overall finances and the lending criteria of the company you’re trying to borrow from.

If you generally have a good history of responsible borrowing, one missed payment (or default, as it is sometimes known) might not have much impact. On the other hand, a series of missed payments could prevent you from any further borrowing. And if you can’t afford to repay your credit card debt, you could face bankruptcy.

If you do miss a payment, you should contact the credit card company as soon as possible. Some have a grace period, meaning you can avoid the missed or late payment showing up on your file. Better still, set up a Direct Debit to clear at least the minimum monthly repayment on your card so that you never miss a payment again.

Only paying the minimum each month

Paying off the minimum amount on your credit card each month might protect you from defaults, but it’s an expensive way to borrow. You keep your debt for the longest possible period and rack up interest on it each month. Even paying off a little extra when you can reduces your borrowing costs.

Not fully clearing your balance every month

One of the smartest ways to use a credit card is to spend on it for added consumer protection and/or rewards but then clear the balance in full each month. If you do this, you don’t pay any interest whatsoever, and it’s great for your credit score.

The only exception to this is if you’re using a card with a 0% introductory offer to spread the cost of a big purchase or to transfer an existing balance. In this case, you can divide the total amount owed by the length of the offer and pay that amount each month. Of course, if you can afford to clear your debt faster, there’s no harm in doing so.

Missing out on 0% card deals

There are three types of 0% card, which allow you to borrow money without paying any interest for a set period. They are:

0% purchase cards

Also known as 0% spending cards, these let you make purchases and pay no interest for a set period, often up to two years. If you have something costly you want to buy, this is the cheapest way of borrowing.

0% balance transfer cards

0% balance transfer cards let you transfer a debt from elsewhere, for instance, another credit or store card. You might have to pay a small fee, but as the borrowing is then interest free, you should be able to pay it off much more quickly and at a lower cost overall.

0% money transfer cards

0% money transfer cards deals let you pay money from the credit card into your bank account, effectively giving yourself a free loan. Often, there is a small fee attached.

These three types of card often provide the cheapest way to borrow money or refinance debt, allowing you to use your hard-earned cash to pay what you owe rather than clearing mounting interest.

You must make the minimum monthly repayment, or you could lose the 0% offer. You should aim to clear as much of the debt as possible in the interest-free period, after which your provider will switch you to a higher rate.

Read more: Compare interest-free credit cards

Using your credit card to withdraw cash

There are two reasons to never use your credit card at the cashpoint. The first is that it’s really expensive, with daily interest (often at a higher rate than you pay for purchases) and cash advance fees.

The second is that it leaves a black mark on your credit file. This is because using a credit card to get cash suggests you don’t have money in your bank account. This can make it hard to get other forms of credit or favourable interest rates on your borrowing.

Using the wrong card when abroad

Lots of ordinary debit and credit cards come with expensive fees and charges when you use them abroad. They also might not give you the most favourable exchange rates.

Instead, you can look for specialist travel credit or debit cards or a bank that lets you use your card for free when you’re abroad. Make sure you check the terms and conditions carefully because some lenders treat Europe differently from the rest of the world.

Using too much of your available credit

Maxing out your credit limit is never a good idea. Not only does it risk you accruing a problem debt that you can’t afford to pay back, but it also attracts high interest rates and negatively impacts your credit score.

Credit reference agencies say you should aim to use about 30% of your total available credit utilisation. So, if you had two credit cards, each with a £5,000 limit, you should try to have under £3,300 in borrowing across both.

Missing out on reward cards

There are plenty of credit cards out there that offer decent rewards and cashback on spending. This is a great way to make your money work harder, but be wary of accounts with fees. You need to ensure that the rewards you get are worth more than you pay each month to access them.

Read more: Compare our best reward cards and cashback cards