Most people are familiar with how credit cards work, but because myths and misinformation have made our knowledge of them a little muddy, there are several common mistakes most credit card holders don't even know they are making. Here are the top five:
Only paying the minimum payment
This seems like the easiest way to make a payment on a credit card, but there are some major drawbacks to only paying the minimum payment. The biggest drawback is that you're paying more money overtime in interest. Paying an additional $15 to $20 each month may not seem like it'll make a huge difference, but that additional money begins to add up and soon you are paying hundreds of dollars in interest.
An additional drawback to only paying the minimum balance is that it may impact your creditworthiness. If you aren't paying your balance off completely each month, lenders might think that you've taken on more debt than you can handle.
Closing old credit cards
Most think that once they pay off a credit card, it's in their best interest to close the card so they don't have the temptation to build up a balance again. Even though it seems like a good idea to remove the temptation, closing the card can impact your credit utilization ratio, which can negatively impact your credit scores.
Maxing out credit cards
Even though there are circumstances when you may need to use most or all of your available credit, it's best if you pay down the balance as quickly as you can. If you don't, it can have a negative impact on your credit scores. Similar to closing old credit cards, maxing out your credit cards or carrying a hefty balance raises your credit utilization ratio.
Applying for multiple credit cards at once
Opening new credit cards is one way to positively impact your credit scores because it adds to your total available credit, which lowers your credit utilization score. That being said, applying for multiple credit cards at once may have the reverse effect on your credit scores. Too many hard inquiries on your credit report can negatively impact your scores, which will make you seem desperate for more credit.It's best to apply to a credit card that you know you'll get approved for.
Ignoring monthly credit card statements
It's essential that you open your statements and thoroughly look through them before you throw them out. Verify that you completed each of the transactions yourself and report any unknown transactions to your bank as possible fraud. This is an important habit to get used to, especially with all of the store data breaches that have occurred since the end of 2013, including the Target breach that exposed 110 million of its customers. By simply checking your statements each month, you can know if you fell victim to a possible security breach and even catch fraudulent transactions before it's too late.
Julie Myhre is an editor at Next Advisor. A longer version of this article originally appeared on Next Advisor.
Metro does not endorse the opinions of this author.