Credit card problems

8 Mistakes that create Credit Card problems (and how to avoid them)

28th March 2023

With the number of credit card users continuing to increase year on year, it might come as no surprise that the number of credit card problems experienced by many is also on the rise.

And, if you’re looking to get your finances in order this year then one of the key ways to achieve your financial resolutions, when it comes to credit cards, is knowing exactly which problems you should be avoiding in the first place

We’ve listed the 8 most common mistakes people make that create credit card debt below:

  1. Always using your credit card instead of your debit card
  2. Missing payments
  3. Making late payments
  4. Making minimum payments
  5. Assuming all credit cards are the same
  6. Using your credit card to withdraw cash
  7. Maxing out your credit card - even if you can afford to pay it off
  8. Getting multiple credit cards

1. Always Using Your Credit Card Instead of Your Debit Card

In the past, most people used credit cards solely as a convenient alternative to cash. Today, there’s another major draw to using credit cards: rewards. When your credit card provider offers rewards such as cashback or travel rewards, it may seem like a no-brainer to use credit instead of debit.

However, there are two problems with this:

  • It increases your chances of overspending. By constantly using your credit card for small, everyday purchases, it’s hard to get a sense of how much debt you’re racking up. That is until you go to pay your bill and find out you don’t have enough funds to cover it.
  • High credit utilisation negatively impacts your credit rating. One of the factors of a good credit rating is something called low credit utilisation. The less you put on your card, the higher your credit rating will be.
  • Save your credit card for big purchases and stick to putting everyday purchases on your debit card to avoid this credit card problem.

2. Missing Payments

One of the biggest—and most common—mistakes that people make is missing their monthly payments. Some of the main credit card problems that result from missing a payment include;:

  • Being charged a missed payment fee.
  • A reduction to your credit limit.
  • A big drop in your credit score.

The longer a missed payment goes unpaid, the greater the repercussions. If you miss a payment twice in a row or intermittently miss payments, you may find it more difficult to get approval for credit cards in the future.

To avoid missing payments in the future, reflect on why you missed them in the first place.

If you simply forgot to mark it in your calendar once, don’t beat yourself up. If missed payments are a regular occurrence, you can avoid this by setting up automatic payments or setting aside some time each week to mark bill payment deadlines in your calendar.

3. Making Late Payments

In most cases, a missed payment becomes a late payment. The consequences depend on how late your payment is. If it simply slipped your mind last night that you needed to pay your credit card bills and you make the transfer in the morning, most credit card providers aren't going to report this to the credit bureau.

On the other hand, if 30 days or more have passed since your bill’s due date, you can expect to see a big drop in your credit score. Has it been over 60 days since your last payment? Don’t be surprised if your credit card company raises your interest rate.

Avoid this by, at the very least, making the minimum repayment on your bill by the due date.

4. Making Minimum Payments

Though regularly making the minimum payment on your credit card won’t impact your credit score as much as late and missed payments will, it’s best to avoid this as often as possible.

If you only make the minimum payment month after month on your existing credit card debt, you’ll struggle to reduce your balance to zero as a large portion of that payment will go towards interest.

Avoid this credit card problem by making the total payment whenever possible. If cash flow is a problem and you’re unable to pay off the balance in one go, pay as much as you can. Though it may not seem like much, putting even an extra £20 a month towards your balance could help you pay off your debt sooner.

5. Assuming All Credit Cards Are The Same

No credit card is alike, which is why it’s crucial to do your research before applying for a new card. Make sure that the credit card you choose is the right fit for you by weighing up the benefits and fees.

Fees worth considering include:

  • Interest rates
  • Annual fees
  • Extra charges, such as those for foreign currency exchanges and cash advances

Benefits can include:

  • Points for purchases
  • Travel rewards
  • Cash back rewards

To determine which card is right for you, compare the fees you expect to accrue compared to the value of the rewards offered. If the annual fee is greater than the amount of cash you expect to receive back, it might not be the right card for you.

Credit card problems

6. Withdrawing Cash

Most credit card problems arise due to a lack of cash flow. If you find yourself strapped for cash and in need of extra money, avoid taking out a cash advance. Cash advance fees can be as high as 6% and start collecting interest immediately, making them an expensive way to access cash.

Don’t be impulsive. Check out other options, such as getting a debt consolidation loan. Better yet, put some money aside each month for emergencies to avoid needing a last-minute loan in the first place. Cash advances should only be used as a last resort.

7. Maxing Out Your Card

Everyone knows it’s a bad idea to max out your card and miss a payment, but many don’t know it’s almost as bad to max it out and pay it off the very next day. A whopping 30 per cent of your score is determined by how much of your credit you use. Regularly having a high balance tells other lenders that you have enough debt as it is, making them much less likely to approve you for other types of borrowing.

8. Getting Multiple Credit Cards

Having access to multiple credit cards is not only a temptation but also tells other lenders that you’re a risk. It’s okay to have a primary card and one or two others for special uses, but no more than this. Regardless, keep your balance low on all of them.

Making Your Credit Card Work For You

Though credit cards can easily get you into debt, they can also help you when they're used correctly. By avoiding these credit card mistakes, you can make sure the latter is true for you.

If you're already struggling financially then the worst thing you can do is ignore it. We’ve listed some hints and tips on our (help with the cost of living) page which might help.

Alternatively, if your considering things like a (debt consolidation loan) to help you clear credit card debt then we also have lots of information about these too which may help you decide if this is the right thing for you.

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