Home > Credit Cards > 5 Mistakes New Cardholders Make

Comments 0 Comments

Your brand new credit card arrives in the mail all shiny, just waiting for you to take it shopping. Before you break it in, though, watch out for these five mistakes new cardholders often make:

Loading up on Extras

Before you use your card for the first time, you’ll be required to call a toll-free number to activate it. When you do, you’re likely to be pitched several different products before you complete the activation. You may be offered a subscription to a credit monitoring service, for example, and/or some kind of credit protection program. While there are times when it makes sense to subscribe to a credit monitoring service, you shouldn’t feel pressured into signing up for one of these services at the moment you activate your card. There’s always plenty of time to shop around and find the right credit monitoring service if you decide you need it.

Credit protection programs, on the other hand, are frequently a lousy deal for consumers. These programs offer to cover your minimum payment if you are unemployed, become disabled, etc. However, a GAO report found that consumers typically pay far more into these programs than they receive in benefits.

Maxxing Out the Card

If your card issuer has given you a generous credit line, promised you fabulous rewards for using your card, or granted you a great interest rate, you may be tempted to use your card to pay for everything, or to transfer a balance from another higher rate card. But be careful: running up a significant balance on the new card can hurt your credit scores.

Simply the fact that you have opened a new account can affect your credit scores. If you manage the account well, you shouldn’t experience too much damage. Your scores may even improve.

But if you use a significant portion of the available credit on the new card, you may find your scores going down. So try to keep the balance on your new account at 10% or less of the available credit. You can always make extra payments before your due date to keep your balances low, advises credit scoring expert Barry Paperno, community director for Credit.com.

Not Knowing What You Have

Do you know what the interest rate is for purchases if you carry a balance on your credit cards? Do you know what default interest rate they can charge you if you fall behind? What about the foreign transaction fee if you make a purchase out of the country, or buy something online from a company based outside the U.S.?

Before you use any credit card for the first time, it’s a good idea to read the cardholder agreement to make sure you understand what you’ve just signed up for. It’s not exactly a fun task, but in most cases these agreements are more streamlined than they used to be, so hopefully it won’t be too tedious.

In particular, you want to make sure you know what the APR is if you carry a balance, how long the grace period lasts, whether there is an annual fee and for how much, and what other fees may be charged, such as foreign transaction fees or late fees.

Missing out on Rewards

If you chose your card to earn rewards, then it makes sense that you want to get as many rewards as possible. But it’s not always as easy as simply using your card whenever you buy something. That’s because some reward card programs offer bonus points or miles for certain purchases. For example you may be able to earn bonus miles by:

  • Shopping in your card issuer’s shopping portal, or “online mall.”
  • Using your card to pay for meals at participating restaurants.
  • Shopping at certain types of stores, such as grocery stores or office supply stores.
  • Buying items in rotating bonus rewards categories.

However, to take advantage of those extra rewards you may have to register your card. For example, you may need to sign up for your card’s dining rewards program, or you may need to register your card each time a new bonus reward category is announced.

This means it’s worth taking a few minutes to review the information your card issuer provides about rewards programs so you can make sure you’re getting the maximum amount of rewards for the purchases you make.

Adding a Cosigner

Although this mistake is listed last in this article, it’s by no means an afterthought. Of all the mistakes cardholders make, adding a cosigner — including, in some cases, a spouse — is near the top of the list. When you add a cosigner to an account, you agree to pay for all the charges that person makes for as long as that account is open. You also agree to pay any balance until the account is paid off and closed. If the account goes into default, you may be sent to collections and sued.

If that all sounds dire, it’s meant to be scary. Adding someone as a cosigner on a credit card is risky and is not something you should do without really thinking it through. A somewhat safer option may be to add a cardholder as an authorized user to your account. You are still responsible for any charges they make on the account, so watch it carefully. However it’s easier to remove an authorized user from your account than it is to close a joint account.

[Credit Cards: Research and compare credit cards at Credit.com.]

Image: kevin botto, via Flickr

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team