Carrying a balance on your credit card from one month to the next may not be recommended but for many Americans it’s unavoidable. On the latest episode of PennyWise, show producer Ambre Moton is joined by John Kiernan, managing editor of WalletHub, who shares the the top credit card mistakes to avoid. 

Read more on WalletHub here!

About this program

Nat Cardona is host of PennyWise as well as Lee Enterprise's true-crime podcast Late Edition: Crime Beat Chronicles. Lee Enterprises produces many national, regional and sports podcasts. Learn more here.

John Kiernan is the managing editor at WalletHub. He oversees WalletHub’s content strategy and helps produce product reviews, educational guides, and other content to help answer people’s financial questions and help them save money.

John joined WalletHub’s parent company as a writer in 2010. Since then, he’s helped build WalletHub from the ground up, becoming one of the most senior members of the team. His previous work experience includes USA TODAY, US News and The Washington Post.

Episode transcript

Note: The following transcript was created by Adobe Premiere and may contain misspellings and other inaccuracies as it was generated automatically:

It's been hammered into our heads to not carry a balance on our credit card from month to month and to live within our means. And yet Americans are notorious for being fairly deep in credit card debt. Welcome to Pennywise Lee Enterprises podcast. I'm Ambre Moton, the producer and editor of the show filling in for Nat Cardona. WalletHub managing editor John Kiernan is joining me to talk about credit card mistakes to avoid.

Based on the article, it looks like there's eight common mistakes that people make in regards to credit cards. So let's start with that. There are so many options for credit cards right now. What should people be taking into account when selecting cards? What are the most common credit card selection mistakes?

Sure, the first one right off the bat is not having a credit card. Some people kind of think it's dangerous to have one, but really not having one is is dangerous, especially for your credit, regardless of what card you pick. If you have a major credit card, it's going to be reporting information to the major credit bureaus monthly.

And so you could have a card with no annual fee that you lock in a drawer and still benefit. So kind of the fear of credit cards that some people have is one thing you immediately need to get over. Beyond that, as you mentioned, there are tons of options. We track more than 1500 cards in our database at WalletHub.

And so it really what you focus on really depends on who you are as a consumer and what you're looking for from your card. And that might seem obvious, but it can be more difficult in practice. The first thing we recommend people doing is checking their credit score. This will immediately kind of focus you on a segment of the market.

You have a pretty good idea that you'll be approved. So if I check my credit score and say that it's 700, I say, okay, maybe I have a pretty good chance of getting a credit card that requires good credit and I can kind of rule out the ones that are have lower requirements that are very attractive or the ones that require excellent credit outright.

And beyond that, just kind of the main rules of thumb are if you're going to pay in full monthly, you should focus on rewards because interest rates don't matter in that scenario. So you can kind of a card that has excellent rewards and a really high interest rate, that's fine. The interest rate won't affect you. Conversely, if you're going to carry a balance, we recommend trying to get a card with a 0% introductory rate to really kind of be able to finance whatever big ticket purchases or balance transfers you need to do in the short term and then get out of debt before the high regular rate takes effect.

Pretty much no credit cards at the moment have very low regular, ongoing APR. So you kind of have to take advantage of limited time deals.

I know I'm constantly getting all the offers where it's like, Hey, here's this, here are all the perks, here's all of that. So I really like you talking about if you're going to pay it off every month, then go ahead and go for those.

And those offers you get in the mail. Like a lot of times people will just say, I got an offer. Let me apply for it without context, which is the wrong approach. But you can use those to get a sense of what kind of offers you have good approval odds for. If you're receiving something in the mail for a card that requires good credit, you can pretty feel pretty confident and you'll have good approval odds for other cards, for good credit.

And you can then kind of say, Can I beat the offer that I got in the mail with other cards that are on the market?

Gotcha. In the article, there was something about mistaking no preset spending limit for a limitless credit line. Can you talk about that for a minute?

Sure. So this is kind of something the credit card companies are intentionally misleading about having? No. And limit, in the short phrase, kind of gets people thinking, I have I can spend as much as I want. There are no restraints. But the kind of preset part of no preset spending limit is very important. So all credit cards have a limit.

Is just the limit on a no preset spending limit card can vary from month to month based on your spending and payment habits. The state of the economy. They can be issuers, financials. And the problem with that is they don't always communicate to you what that limit is. So with these cards, you don't sure have a firm set limit that's in your online account that you can reference, but there is a limit of them of the day.

And there's a lot of uncertainty that comes along with that. The other problem with that is that the credit card companies don't always communicate. No preset spending limit cards, spending limits accurately to the credit bureaus. So this can sometimes lead to mistakenly high credit utilization that can hurt your credit score. It really kind of depends on how the issuer reports things.

So it can vary, but this isn't to say that those cards are something you should stay away from. Some of these cards are the best among the best cards on the market for certain types of rewards and things like that. But it's definitely something to take into account and to not be misled by it.

And another thing that I thought was really interesting was thinking that college students can't use credit cards. I remember being an undergrad, and any time you go to a game or an event or even like career fairs, there's always someone handing something out. But I feel like we were always told, No, no, no, you can't have one. You can't have one. You're not, you know, you're still a student.

So, yeah, things have kind of the pendulum has swung throughout the years back in the day. You're right that you could go get a free T-shirt or Frisbee or whatever. Can they get your information Signing up for a credit card. Laws have since changed, and so they can no credit card companies can't do that type of direct kind of outreach on campus anymore.

But a lot of people have taken that combined with rules about independent income when applying for a credit card, and they've mistaken it to be that you can't get a credit card as a student. But all the rules really require now is if you're under 21, so 18 to 21 years old, you have to use independent income to show that you can afford bill payments.

And the difference is older people can use shared household income. They have reasonable access to it. And so it's basically everyone at the end of the day has to prove or show that they can afford a new credit line. And with students, they just want to make sure that you're not just kind of reporting your their parent's income or something like that.

And they really can afford the the credit that they're taking on.

We all know that, you know, it's important to build credit. But what do people usually get wrong when they're building credit with credit cards.

Kind of going back to not having a credit card? It's really not getting started early. I know one thing that I'm thankful of. My parents made me an authorized user on their credit card when I was young, before I could get one on my own. So by the time I was able to apply legally at 18 and get my own credit card account, I already had some credit standing, so it made it easier to get approved.

So you can add someone to as an authorized user to your account when they're a minor and help out on the credit. And then once you turn 18, I think people really need to get their own credit card, even if they don't plan to use it. So they get that monthly influx of information to their credit bureaus and their credit reports.

The contents of your credit card is what makes up your credit score. And so and using the credit card responsibly is the easiest way to get information onto your credit report month after month. And you don't even need to use it. You can just open a card with a $0 fee and lock it and draw and you'll benefit.

When it comes to looking up your credit score. Do you ever pay to get your credit score?

No, definitely not there. I'm obviously a little biased because Wallethub does free credit scores and credit reports and credit monitoring, but there are a ton of options, reputable options these days that have free credit scores and reports. And you're going to those are based, again, on the information, your major credit reports and so with the kind of prevalence of so many free options that are reputable and will tell you what you need to know, there's really no reason to try to pay.

A lot of people think, I need to get the exact same model as the credit card company or the lender is going to be using. But that's really tough to do because the lenders all modify kind of the publicly available models with their own in-house variations is never really going to get the same exact model. And the different credit scores are basically kind of directionally the same.

I think there's a CFPB report a few years ago that said there's like a 90% correlation between the contents or the credit scores, the final credit score, credit ratings based on the different models. So they're pretty much kind of on par. Basically, if you're checking the same free one over time, that's what you really want to see. So if you're improving by any of those models or any of those free scores, you should be improving by the others as well.

Awesome.

Okay, then we have to talk fees. I know I'm always getting mailings about transferring balances or fees on cash advances. What are some of the more common credit card fee mistakes?

Well, on one end of the spectrum, a lot of people see annual fees and say, okay, a card with an annual fee must be worse than one with a fee or vice versa. They have these assumptions, but you really need to try to take into account what the card offers in return for the fee. So if you're going to get a $500 initial bonus and 5% cash back on purchases, but you have to pay a $95 annual fee, you still might come out and you're likely to come out way ahead at the end of the day, once you take that into account and the no annual fee card could be more at the end of the day, or it might not. Knowing your fee is kind of it's more likely to save you more when you're not going to be using the card super often or spending a lot on it. But the bottom line is people should have kind of an open mind about annual fees and take into account what they're getting for that.

When it comes to balance transfer fees, it's a it's a similar situation. Most of the best balance transfer cards that offer 0% introductory APRs for the longest possible period do charge a 3% balance transfer fee. You have far fewer options if you want a card without a balance transfer fee and the intro periods are going to be much shorter.

So if you don't need as long to pay to pay off what you're going to be transferring. For example, if you could do it in 12 months instead of 21, then the no fee option will probably saved you more money. But if it'll take you a much longer time than a card with a fee balance transfer fee like you said, be more given how expensive the regular interest rates on balance transfer cards are.

So if you don't pay off the full balance transfer by the time the intro period ends, the remaining amount will be subject to the regular MPR. And so that could end up being a lot more expensive than a 3% fee.

Gotcha. I had a couple of teammates in college who would joke around about how using a credit card was free money and then they would, you know, try and consolidate or transfer and things like that. And I think they just kind of ended up spending a lot more on the fees.

And I think that that is a concern. A lot of people think they can hop from one card to another, but it's kind of like musical chairs at some point they up the offers kind of dry up or become very expensive in terms of fees. And so then you're kind of left holding a pricey bag, not the good kind, I guess.

So what can you say about the mistakes that people are making about spending and payments? Is it the end of the world if you miss a payment or if you're late?

Yeah. So it's not the end of the world if you missed kind of one due date, especially because credit card companies usually don't report a missed payment until the second due date. So you're 30 days late on the first and you've missed your second due date or been report was late and that's very bad for your credit score, especially if you keep being reported as late.

So you want to avoid that. But if you happen missed one due date or something like that, that's often not the end of the world. What I would definitely recommend is calling your credit card company or company and saying, Hey, whatever the case may be, something came up and I paid on time every time until then. Can you kind of mark me as on time when I make it up or waive the late fee?

We've done surveys of and people credit card companies are more willing than you might think to kind of forgive a one off fee or something like that, especially to keep you as a customer in terms of the missing payments. Beyond that, obviously, like, you can have some leeway if you missed one or something like that. But the best thing to do is to set up automatic payments from a bank account.

If you're like me, you're kind of forgetful. You're liable. Sorry. my gosh. That payment was due three days ago. If you don't have something automatic set up so setting up from a bank account kind of just takes forgetfulness out of the equation and it can be really helpful. I know early on in my credit card career, I've missed a payment and just because I forgot.

But since I autopay and I haven't since there's some kind of things you need to take into account with that you can't just forget about your account and not look at the charges ever, because it could be something that you got overcharged for a fraudulent purchase or something along those lines. And you need to make sure you're kind of keeping within your budget and all that.

Is it, I guess, worst to exceed your credit limit or do a cash advance? Are they both bad?

Yeah, neither is very good. You might not be able to exceed your limit. It's up to the kind of issuer if they'll approve a transaction that would go over your limit or not. But maxing out your card is definitely not good for your credit score. It's not the end of the world. If it happens at one point and you pay it off pretty quickly thereafter.

A cash advance, kind of a similar situation. It's bad in the sense that pretty much all cards will charge a fee for the cash advance. And you might also be hit with ATM fees. And then there's a high interest rate that starts applying immediately. There's no grace period for cash advances, but if you're okay with like an $8 fee or whatever the case may be, and you can you need cash for something for some reason, you can't get it another way and you'll be able to pay it back pretty quickly.

So you're not accruing much interest. It's not the end of the world, but it's not something you want to be doing on a regular basis, Right?

So in case of emergency as opposed to something you can do.

Exactly. And if you have to do it, the sooner you can pay it off, the better.

Fraud and identity theft. What mistakes are people making in this category when it comes to credit cards?

Yeah, The biggest mistake people have here is kind of not being engaged, not reviewing their account history. One of the the benefits of credit cards is that all major cards have a $0 fraud liability guarantee. So if you notice a fraudulent charge or charge, you didn't make or charge double for something by a merchant by accident, you're not going to have to pay for that.

But you it's better if you can notice it and tell the credit card company because they won't always catch everything. So reviewing your monthly statements, just watching out for things like that, it in the most important and as with your email and other important accounts, changing your password regularly is a good idea. Just in case lots of accounts are kind of compromised and data breaches and things like that.

You know, make your yourself less of a target if you have a good strong password being changed fairly regularly.

You know, that sounds something I definitely need to get better about. It's changing those passwords need to know what are the best tips to kind of combat the mistakes that are commonly made when it comes to using credit cards internationally.

Yeah, it's a good question. The biggest thing is before you leave to make sure you have a no foreign transaction fee credit card, about 70% of cards do charge foreign transaction fees, but a growing number of issuers such as Capital One don't charge foreign fees on any of their cards. And so the foreign fee is important because it's usually around 3% that every purchase that's process internationally.

And so if you're going abroad, you're going to end up making a lot of purchases and spend 3% more than you have to, which is going to add up to a lot. So getting no foreign fee card on the Visa MasterCard network will help you avoid that extra costs and we'll be able to use it pretty much wherever cards are accepted.

The additional benefit to using a credit card is Visa. MasterCard automatically gives really competitive exchange rates. And so you're going to be getting a lot more bang for your buck on the conversion than you would if you're converting hard currency at a local bank or an airport kiosk. And it's going to be happening automatically. So you'll need to be carrying around hard currency and worry about getting pickpocketed or losing it, etc. And unlike cash, your credit card can be easily replaced and you don't have to you're not liable for purchases made with it if it gets stolen.

So you have the cost savings and the security and the convenience of not having to lug around a bunch of extra stuff when you're when you're traveling abroad.

I know my last trip I went to Barcelona by myself and I did get cash once I got there, but I mainly used a credit card that didn't have a foreign transaction fee, and so I just tracked everything set and already set aside money. So I knew as soon as I got home I could pay it off. So but that's yeah, definitely.

You know, my friends were like, “No, just get cash!”

I think people feel like they're a little more immersed or something when they have the local currency, but they can take that, that feeling and you can save 3%. The other benefit I went after college on a trip, I think starting in Spain, I went to France and a bunch of places, but my bags were delayed. They lost them for a long time and I basically had to buy a bunch of new stuff and it would have been really expensive.

But my credit card had baggage insurance. wow. So I basically could just submit the receipts. I'm mad because I went shopping in France and got a bunch of not nice stuff. And yeah, I felt more secure at the time of the benefit than I could have gone crazy. But but yeah, so those types of secondary benefits can really help you out in a pinch too.

Yeah, that's cool. Definitely have to look into that because I've had my bags delayed getting to me while traveling too. So that's. Yeah, that's a good one. Okay. So so far we basically talked about, you know, credit card debt as it relates to individuals. But what are some of the common business credit card mistakes?

Most of the same mistakes apply for consumers and businesses. There are some differences in the regulations on consumer cards and business cards that kind of can maybe influence your decision. So, for example, business cards aren't subject to the same rules under the CARD Act as consumer cards. And so one of the rules that allows kind of the business credit card issuers to increase interest rates whenever they want, and some credit card companies have proactively extended the rules to their business cards.

And so it's not a concern, but it's kind of it's not something you can rely on as much with a financing. So a lot of business owners might want to get a 0% consumer card, especially if it gives 0% for longer. And some people might be worried about using a consumer card for business given the increase in liability.

But one thing a lot of people don't realize about business cards is that you're personally liable for any debt on those because credit card companies generally view a small business as an extension of the owner's personal finances. So you can really cast a wide net when you're looking at business credit cards. A lot of times with with rewards and other features like that, you can get a little more functionality from a business credit card, but you can also consider consumer cards if they can get you better deals as well.

That makes sense. Well, is there anything that we haven't talked about that you think is really important that our listeners learn about credit card debt and mistakes that people make.

Not really paying attention to the latest offers is is probably something to consider. People maybe shop for credit cards a couple of years ago. And then I think the market doesn't change so much. But we're seeing a lot of competition. So kind of the initial bonus offers are among the most attractive they've ever been 0% periods or as long as 21 months.

Right now. And I guess the other thing is if you want to have get a better credit score or have a better credit card, the kind of long term thing you need to do is improve your credit score and try to earn more money, income and your credit history. The most important things and the best cards overall require good or excellent credit.

And in the short term, just comparison shopping is really important. Not taking any offer in a vacuum and kind of saying, okay, one initial bonus, let's compare the different offers out there and get the best one based on the numbers. And as a plug, WalletHub can can help you do that.

Pretty awesome. That's great. Well, John Kiernan of WalletHub, thank you so much. We appreciate it.

Thanks for having me.