Getting a credit card for the first time can be a super exciting experience, giving you a brand new sense of financial freedom and allowing you to start to build your credit history. However, as you have no doubt heard, credit cards aren’t all sunshine and roses, with more people than ever before in deep credit card debt. Despite being extremely common, credit card debt can be incredibly detrimental to your long-term financial health.

Therefore, it is more important than ever for you to be cognizant of your credit usage and learn about some of the more common mistakes that people new to credit cards typically make. While this is not an exhaustive list, the following are some of the more detrimental mistakes that people make with long-term effects. If you ever want to become a credit card pro, you will need to know all of these concepts back and front, so we recommend getting familiar with them as early as you can to avoid any issues down the road!

So without further delay, here are:

7 of the most common credit card mistakes (and how to avoid them)

1. Not understanding the terms and conditions of their credit card agreement.

Before you apply for a credit card, be sure to read the terms and conditions carefully. This may sound obvious, but you’d be shocked at how many people will see the bright and shiny “apply” button and jump at it without looking into the fine print. Even if you already have a card, we recommend reading through all the details at least once, so that you’re never caught out by surprise. If you’re a complete beginner, there are some key terms and conditions that you should be extremely familiar with and look for in each card you apply:

• The interest rate: This is the amount of interest you'll pay on your outstanding balance each month (which you should aim to never pay).

• The annual fee: This is the fee that you'll pay each year to have the credit card (though most beginner cards have none).

• The late payment fee: This is a fee that you'll be charged if you don't pay your bill on time (not including any interest)

• The grace period: This is the amount of time you have to pay your bill in full before you start being charged interest (generally about a month, but it varies).

• The sign-on bonus: This is a point bonus for spending a certain amount on the card in a certain time frame.

• The % cash-back/point multiplier: how much using the card will net you in cash back or credit card points

Whether you’re considering a new card, or just trying to better understand your current card, it’s essential that you look at all of these items for every single card. These are just the basics, with concepts like trip insurance, point redemptions, and point expiration also important things to consider

2. Not paying their bill on time.

Okay, this one should hopefully be obvious. If you get a credit card, pay your bill on time—if you do not, you will owe credit card debt. There is no way around it: a credit card is not free money, and you should never treat it as such. The single most important thing you can do to build good credit is to pay your bill on time each month. If you miss a payment, you can be charged late fees and owe interest, which can spiral and lead you into the depths of credit card debt. These late payments will be reported to the credit bureaus, which will damage your credit score for a long time.

Pro-tip: To avoid late payments, set up automatic payments so that your bill is paid in full each month without you having to even think about it. As well, treat your credit card like a debit card, where you only buy things you can pay for in cash.

3. Carrying a balance from month to month.

When you carry a balance on your credit card, you're essentially borrowing money from the credit card company and paying obscene interest rates. The interest rate on this borrowed money is usually unbelievably high (e.g., 20% or more), so it is unbelievably important to pay off your balance as quickly as possible. The longer you carry a balance, the more interest you'll pay, and the deeper you’ll fall into credit card debt. To pay off your balance more quickly, make full payments and never just the minimum. While it sounds simple, getting out of credit card is extremely difficult, so we recommend following rule #2 and never getting into debt in the first place.

4. Using their credit card for impulse purchases they can’t afford.

You may say, “Wait, this is similar to numbers 2 and 3”

That’s correct. We’re going to say this in as many ways as needed to get the message across: DO NOT use your credit card like it’s a free pit of money, or you will go into credit card debt. We know it's easy to get caught up in the excitement of using a credit card and make purchases that you might not be able to afford. But before you make a purchase with your credit card, ask yourself if you really need it and if you can afford to pay for it in full when the bill comes due. If you can't afford to pay for the purchase in full, don't use your credit card. Instead, save up for the purchase until you can afford it. To repeat: if you can’t afford it with your debit card, don’t buy it with your credit card.

5. Using their credit for too much in a short time period

In order to build good credit, you need to use your credit card responsibly and make regular payments. However, you don't want to use your credit card so much that you carry a balance from month to month (as we have repeated) or blow out what is called your “credit utilization,” which is the percentage of your total available credit that you use in a given month. A good rule of thumb is to never use your credit card for more than 30% of your monthly expenses.

However, if you do the opposite and never use your credit card, the credit card company may actually decide to close your account. This can hurt your credit score because it will lower your total available credit for utilization. The rough sweet spot is ~5-10% of your total credit per month.

6. Not tracking their spending.

Tracking your spending is a good habit to get into as early as possible; when you start applying for fancy travel cards (e.g., the Capital One Venture X, American Express Gold), it becomes absolutely essential. Not only does monitoring your expenditure help with avoiding overspending and making sure you can afford to pay your credit card bill each month, but it also helps you figure out which categories of spending you put the most money on in a given time period.

If you know which specific cost categories (e.g., food, rent, travel) you spend the most money on, it becomes very easy to plan your next credit card. There are many different ways to track your spending, such as a basic Excel spreadsheet, a budgeting app like Mint, or even a physical notebook (if you’re more old-school). Regardless, tracking your spending over time and across categories is key to maintaining your financial health and managing your credit card accounts.

7. Unnecessarily closing their credit card accounts.

If you have a credit card that you don't use very often, you may be tempted to close the account and be done with it. However, closing accounts can actually hurt your credit score. The length of your credit history is one of the factors that lenders consider when determining your credit score, so if you close an old credit card account, you'll be shortening your credit history. While accounts do stay on your credit for ~10 years (even when closed), in general, it's better to keep your credit card accounts open as long as they don’t have an annual fee.

To keep an account open, all you have to do is use the card once every couple of months—this can be as small a purchase as a soda at the gas station!

Summary

Hopefully, a lot of these tips seemed straightforward; if so, you should be in a good place to start expanding your credit. However, everyone starts somewhere, so don’t feel ashamed if this is new to you—as long as you avoid these common mistakes, you can use your credit cards to responsibly build a good credit history and avoid going into credit card debt. At the end of the day, credit cards are a tool—if you use them responsibly, they will take you far!

We love helping out credit card beginners, so if you have any questions at all, please leave a comment below and we will make sure we help guide you to the answer!