Credit can be a powerful tool.
But making too many credit mistakes can ruin your budget, drown you in debt, and tank your credit score.
So, one of the keys to credit is knowing which mistakes to avoid.
Credit card debt totaled $1.21 trillion in the US in Q1 2025. And overall American household debt stands at $18.39 trillion in Q2 2025.
In this article, we will try to make sense of why so many people are struggling with credit. And yes, we’ll go over the common credit card mistakes, some of which may surprise you!
Entering a credit card-fueled debt spiral is one of the worst credit mistakes anyone can make.
What are the three most common mistakes made with credit?
1. Carrying a balance.
The first of the credit mistakes that even highly intelligent people make is carrying a balance.
Carrying a balance on a credit card or other account is extremely costly. There are a few reasons people may do this.
First, some people see their “minimum” and assume it makes sense to just pay that.
Yes, paying your minimum is critically important. But you will still be charged interest on the rest of your balance after your current billing cycle ends.
Keep this in mind: minimums are literally that; minimal amounts you must pay.
They aren’t “minimums for avoiding interest charges”. You must pay your balances in full to not be charged interest.
Others simply forget, perhaps after missing deadlines, or otherwise end up carrying a balance.
But if your credit card carries an interest rate of over 16% (which it almost certainly does), you will end up spending thousands of dollars a year on a single credit card just for carrying a balance.
2. Paying late.
This is less costly than the first credit mistake, but paying late means paying interest.
When you miss your payment deadline on your credit card, you will likely also face late fees. The combination of very high interest rates and late fees can then be made even worse by a third factor: rate increases.
When you start falling behind on payments, there is always a chance that the card issuer will opt to increase your interest rate. That rate change would be effective immediately, meaning it applies both when:
- You miss future deadlines
- You fail to pay your current balance in full before the end of the current billing cycle
3. Avoiding all credit.
Credit cards probably don’t look great at this point…
So why not just decide to not bother with credit at all? After all, you’re frugal and maintain a healthy budget…
Many people think somewhat along these lines and decide to forgo credit entirely. However, this is a bad choice if you ever want to get a mortgage, car loan, or any other kind of loan in the future. If you cancel all your credit cards, you:
- Are penalized for closing credit accounts with a small drop in your credit score
Even if you don’t close a credit account and simply don’t apply for one you…
- Have a less diverse credit profile (bad for your credit score)
- Don’t have a good opportunity to regularly demonstrate responsible credit use (also bad for your credit score)
It’s better to use a credit card, but maintain strict rules. You can:
- Use a credit card for specific purchases that give you rewards
- Set a strict spending limit for credit cards
- Set reminders for your payment deadlines
- Make a slight profit from rewards
- Never pay any interest!
Of course, you need to be aware and responsible, but you can make credit cards work for you!
Other Credit Mistakes
Taking the first card you are offered.
For most people, shopping for a credit card isn’t an enjoyable type of shopping. It’s boring and annoying, so sometimes we want to get it over with quickly.
But it’s worth it to seriously consider what you want out of a credit card. After all, they normally offer some of the following:
- Cashback rewards
- Points/loyalty rewards
- Air Miles
In addition, in the case things go wrong, you’ll wish you considered the cards with lower interest rates as well.
Take your time to pick the right credit card.
11 Questions You Need to Ask to Choose the Right Credit Card→
Failing to budget.
This mistake often lends itself to the three we went over above.
Credit cards don’t deserve any less attention than the attention you would pay to the cash in your pocket.
Credit cards are money, in at least one way; they have finite limits. Failing to budget properly can ensure you’re unable to pay your balances on time. Even in more forgiving cases, you’ll stretch your budget to pay your balance back, meaning your credit card is still costing you too much, albeit in an indirect way.
What to Do When Your Credit Card is Maxed Out | Financial Challenges→
What are the most serious credit mistakes?
Missing a payment while you carry a large balance is by far the most serious credit mistake you can make.
Most other mistakes are easy to recover from. But missing payments for any reason while you carry a large balance can begin an uncontrollable debt cycle. If you’re charged hundreds one month for missing a large payment, your budget will be squeezed when the next payment is due.
This process can easily and quickly spiral out of control.
Entering a credit card-fueled debt spiral is one of the worst credit mistakes anyone can make.
What should you not do to build credit?
While having no credit accounts is bad for building credit, so is having too many.
Besides, what credit bureaus will reward you for is having diversity in your credit use. So, having a responsibly used credit card and a line of credit is better than just having two credit cards.
Credit Mistakes to Avoid: Conclusion
Credit mistakes can only be avoided by paying attention.
Staying up to date with credit accounts ensures you receive the most benefits from them while not making the credit mistakes that damage your credit score and constrain your budget.
Updated from May 13, 2024
