The Worst Things You Can Do With A Credit Card

By   |   Updated 10 Jun 2024

We all make mistakes, but if you can avoid them, you’ll be better off. In this video, we look at the worst things you can do with your credit card.

Video transcript

Hi, I’m David, and this is Credit Card Compare. We all make mistakes, but if you can avoid them, then you’ll be better off for it.

So we’ve compiled a list of the worst things you can do with your credit card and some of the steps you can take to avoid them:

1. Having the wrong type of credit card

Make sure you’re not choosing a credit card for the wrong reasons. Know what fits your personal finances and your lifestyle:

  • If you’re all about paying down old debt and saving money, then you’ll probably be better off clearing your card debt or switching to a low rate card. For example, some people carry balances on a credit card at 20% when they could transfer over to a balance transfer credit card at 0% and really start to attack that credit card debt before the 0% rate reverts to the normal interest rate.
  • Other people have a basic, no-frills card, but their lives have changed, and now they could actually be earning loads of rewards points. If you tend to pay off your balance in full every month, a rewards card or frequent flyer credit card could be a great choice for you.
  • Use our comparison site to find the right card.

2. Applying for multiple cards in one go

Banks can see this activity on your credit report, and the enquiry stays on there for quite some time. From a bank’s perspective, it doesn’t look good if multiple credit card applications are being made in quick succession. A better way to go about it would be to complete all your comparison and research on a site like Credit Card Compare and then apply for the card that you like the best.

3. Using your card for cash advances from an ATM

If you’ve done this, you’re not alone. Around $100 million per year gets withdrawn as cash advances. Worse still, using the cash advance to fund gambling habit is going be very destructive – since credit cards can’t be used for gambling purchases. The trouble is, cash advances are really not the way your credit card is supposed to be used. It’s treated differently than a straightforward purchase. All banks and credit unions charge 2 things for doing a cash advance: a cash advance fee and a cash advance rate. So lets say you withdraw $100 from an ATM that doesn’t belong to your bank. The cash advance fee of 2% = $2, the 20% cash advance rate will apply to the withdrawal amount straightway plus there’s the non-bank ATM fee of $2. In essence, that’s $4 to get out the $100 from the ATM plus the interest.

What’s more, when you go overseas if you do a cash advance from an overseas ATM, then on top of everything else the overseas ATM withdrawal fee can be closer to $5) plus the foreign exchange fee of about 3% ... which really adds to up be an expensive way to get cash out. So if you can, you’ll want to avoid making a habit of doing this.

The 4th thing that you’ll want to avoid doing, is…

4. Ignoring your statements

This is an important but mundane habit to get into. Check out the items listed on your statement and remember when the due date is, because you don’t want to be slugged with late fees of $10-$30 plus a 'black mark’ on your credit report). A simple thing you can do is to change your behaviour: always check out your statement for any suspicious charges or 'grey’ recurring charges, set up a reminder on your phone or get your bank’s app so you can always know how you’re tracking along. And make sure to factor in some buffer time for your payment to make it from your bank account to the credit card and the bank. Check with your credit card to see if you can have your due date moved a little bit to a more suitable time of the month.

And the last thing to avoid is…

5. Repaying the minimum only

Credit cards aren’t supposed to long term debt. The flexibility is there on a credit card to pay it off in full every month, some of it or just the minimum which is great if you need to divert your money somewhere else for a short period. That’s one of the really convenient things about a credit card. But – you don’t want to get trapped into a cycle of repaying just the minimum amount. As an example, if you have a credit card balance of $5,000 and you’re repaying it at the rate of 2% (equivalent to $100 per month) then it would take you about 9 years to knock it over That’s just too long. In the tools section, you can run your numbers through our minimum payoff calculator to figure out how long it’ll take you.

6. Bonus: Spending more money to earn more points

Obviously, this is not a wise move. It’s got to be your normal spending otherwise you’ll get yourself into problems i.e get into credit card debt. For example, some people pay for all their personal expenses on a credit card and then pay it off each month in full – essentially re-routing their spending out of their regular transaction account and via their credit card. For other people, their primary spending is done via their bank account’s debit card and some discretionary spending gets put on the credit card. Either way, don’t chase extra points and bite off more than you can chew.

Remember, it’s about making it work for you. I hope that’s been very helpful.

Again, I’m David Boyd, and these are my worst things you can do with a credit card.