^{Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.}

Americans are up to their eyeballs in debt. The Federal Reserve says credit card debt stands at $1.17 trillion, up $24 billion in just the third quarter. And despite incomes rising faster than the accumulation of debt, delinquency rates are surging, up to 7.1% from 5.78% a year ago. Credit card delinquencies are higher than any other class of debt and stand two-and-a-half times greater than the next largest category, auto loans.

Although credit cards can be powerful tools for building a strong financial foundation, their misuse can create grave consequences. A significant drop in your credit score can hinder your ability to get a loan, rent an apartment, or even get a job. 

Below are some common mistakes many people make with their credit cards along with positive actions they can take to avoid them.

24/7 Wall St. Insights:

• Credit is a necessary evil today, but too many people succumb to the pitfalls of credit card debt.
• There are lots of misunderstandings about how to improve your credit score and taking the wrong actions can hurt you.
• There are many tools and apps available to users to quickly and easily monitor their credit card situation, allowing them to take action before there is a problem.

Pay your bill late

Imagine you get a new credit card and make a few purchases, but forget the deadline and pay the bill late. Suddenly you’re socked with a late payment fee and higher annual percentage rates (APR) could be charged on your balance. Worse, your credit score will suffer, potentially impacting your creditworthiness, all with one late payment.

To prevent late payments, set yourself a reminder for your due dates. Also consider automatic payments or opt for credit cards with grace periods to ensure timely payments.

Max out your credit limits

Let’s say you have a $5,000 credit limit and run up charges of $4,900. As it puts you close to maxing out your card, it significantly increases your credit utilization ratio, or the percentage of your total credit you’re currently using, a crucial factor in determining your credit score. High utilization ratios signal to lenders you’re heavily reliant on credit, making you a riskier borrower.

A best practice is to keep your credit utilization below 30%, or in the example above, using no more than $1,500 on your $5,000 credit limit. By regularly paying down your balance and keeping track of your spending you can easily avoid this pitfall.

Opening too many credit cards

Credit offers are not your friend. They are your financial enemy. Although credit card companies will entice you to open an account by offering a new card with exciting rewards, doing this too many times, especially in a short period, can negatively impact your credit score. Each application results in a hard inquiry on your credit report, which credit reporting bureaus look at negatively and lower your credit score.

To remedy this, only apply for a new credit card when you genuinely need it. Also, avoid applying for multiple cards simultaneously, as this raises red flags for lenders. They think you’re going to run up the balance to the maximum on each and will hold that against you.

Ignoring credit card statements and fees

While many credit cards might offer attractive initial APRs, the small print shows their hidden costs: annual fees, balance transfer fees, and cash advance fees are just some of the ways the companies will nickel and dime you — and they are a lot more expensive than just nickels and dimes. The fees can also quickly add up and negatively impact your finances.

By ignoring the statements, you may also miss errors or fraudulent charges on your account. One important step to take before applying for any credit card is to carefully review the fee schedule and only choose cards with minimal fees or no fees, if possible. Also, immediately dispute any errors or fraudulent charges

Not using your credit

As absurd as it sounds, credit bureaus will ding you for not using your credit. While it’s important to avoid overspending, not using your credit can also hurt your credit score. The companies want you to be in debt and consider credit use history an important factor in determining your creditworthiness. So if you avoid using your credit or have no credit history, lenders view you as a higher risk.

If it is important to you, make small, regular purchases on your credit card and pay them off in full each month as it will help establish a positive credit history and improve your score.

Closing old accounts

The length of your credit history is actually a significant factor in your credit score so closing old credit card accounts won’t help improve your credit score. In fact, it will hurt it because closing an old account shortens your credit history while simultaneously increasing your credit utilization rate. It has the potential to lower your credit score.

The obvious solution is to keep old credit card accounts open, even if you’re not actively using them. If you need to close an account, only do so only after you’ve built up a strong credit history with other cards.

Help is on the way

There are several excellent tools and apps you can use to monitor and improve your credit score, with the following being some of the most popular.

Credit Karma. This app provides free access to your credit scores from Equifax (NYSE:EFX) and TransUnion (NYSE:TRU). It also offers personalized recommendations for improving your credit.

Experian. The Experian app allows you to check your credit score and report, and it provides alerts for any changes to your credit report. It also offers credit monitoring services.

Credit Sesame. Similar to Credit Karma, Credit Sesame offers free credit score monitoring and personalized tips to help you improve your credit.

myFICO. This app from Fair Isaac (NYSE:FICO) gives you access to your FICO scores and credit reports. It provides alerts for changes in your credit report and offers educational resources to help you understand your credit.

CreditWise by Capital One. This free tool from Capital One (NYSE:COF) allows you to monitor your credit score and provides insights into factors affecting your score. It also offers tips for improving your credit.

Aura. Aura is a comprehensive credit monitoring service that not only tracks your credit score, but also provides identity theft protection and financial monitoring.

MyCredit Guide. This tool from American Express (NYSE:AXP) offers free access to your credit score and provides insights into how to improve it, even if you are not an American Express cardholder.

Using these tools lets you stay informed about your credit status and take proactive steps to enhance your credit score. Regular monitoring can also alert you to any potential issues, such as identity theft or errors in your credit report.

Key takeaways

Remember, credit cards are not your friend. Only use them strategically to your advantage. By understanding the common mistakes others make, you can avoid damaging your credit score and build a strong financial foundation for your future. 

Your credit score is used in many ways throughout your life so remaining in good standing and managing your credit wisely will let you navigate the hazards of debt.

^{Flywheel Publishing has partnered with CardRatings for our coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.}

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