For the past few years, I like to see myself as someone with a plan who follows it all the way through. Unfortunately for me, it never quite works out that way. Here are my biggest mistakes when it came to building my credit:
Not Understanding Billing Cycles
If you only ever used a debit card before, the way credit card billing works can seem very confusing. With a debit card, everything is immediately paid off, and you don’t have to think about the bill anymore. Credit cards are the exact opposite. The hardest part is buying something, then realizing the bill for it won’t come in for another month or so.
For example, the billing cycle for a credit card for a certain month might be August 10th to September 10th, while the due date is September 7th. If you did any spending from August 10th to September 10th, it isn’t due until October 7th. Even though it makes sense, it goes against all the good habits you built with a debit card.
Thinking I know how to track my money when a credit card is involved
Like I mentioned before, the transition from using a debit card to a credit card can be rough. I was able to track everything in real-time when I used my debit card. Now, I had to find a new way to stay on track.
The solution is different for everyone, but I found paying my balance off in full by the beginning of each month worked for me. The benefits were having a lower credit utilization and paying no interest since I paid it all off.
Focusing on the cashback
We can’t talk about credit cards without mentioning cashback. My first credit card was Bank of America’s cashback credit card for students. When I first got my credit card, I found it easier to spend money. I was saving money in my moving out fund and investing in my Roth IRA, so I figured spending a little more money on fun things wouldn’t hurt. Plus, I got extra money thanks to the cashback.
After a couple of months, I realized that I wanted to save more money, and I was using the cashback as an excuse to spend. Not to mention, people are more likely to spend money if they use a credit card vs cash. Now, I use a budget and track my spending throughout the week to stay focused.
Overall, my mistakes haven’t cost me too much, and I’m glad I learned from these mistakes when I’m young and don’t have too much money involved. Even with all these mistakes, my credit score is still in the mid-700s, so it could have been way worse.
Are you thinking about getting a credit card? Check out this credit card list to see if it’s the right time!