Every Year, Holiday Shoppers Make These 3 Costly Mistakes With Their Rewards Credit Cards

To help you evade a credit card disaster, here are three common mistakes you should avoid.

Credit card, online shopping, retail

Image source: Getty Images

We’re almost a week away from Black Friday, and Canadians are eager to start spending.

According to Statistics Canada, Canadians are expected to spend an average of $1,841 this holiday season, with most using their credit cards to foot the bill. That’s more than 31% from last year and a few dollars more than American spenders (an average of $1,831)

That’s a lot of money to spend. And with more money at stake, the risks of using credit cards only get higher. So, to help you evade a credit card disaster, here are three common mistakes you should avoid.

1. Charging more than you can afford

Perhaps the biggest credit card mistake you can make is to charge more than you can pay back. That may seem like a big “duh,” but considering that credit card debt is so easy to accumulate, it’s worth stressing.

When you don’t pay off your credit card, you carry a balance. And that’s when things get costly. You’ll lose your credit card’s grace period and incur interest for every day you don’t pay off your purchases. Given that credit cards have interest rates between 20% and 30%, that can be a hefty sum.

Of course, to stay in good graces with credit bureaus, you’ll want to pay at least the minimum. But maxing out your cards will hurt your credit score regardless. That’s because a large portion of your credit score is dedicated to credit utilization — that is, how much credit you’re using versus the total amount you’ve been given. A higher credit utilization could tank your score, even if you’ve never missed a payment.

If you do end up charging more than you can afford, consider getting a balance-transfer card with an introductory low APR. The low interest rate on the new card will help you put more toward your principal and less toward interest rates. That could save you a massive amount of money, not to mention help you get out of debt quicker.

2. Signing up for a store card

Brace for it, because it’s going to happen.

You’ll get to checkout, either online or in-store, and the clerk will ask you if you want to sign up for a store credit card. You’ll get a special promotional discount if you do, they’ll often promise you, or even a store rebate. All you have to do is apply for the card.

Unless you shop frequently at that store, don’t go for the bait. For one, the retailer will pull your credit report, which will adversely affect your credit score. Secondly, a brand-new card could lower the average age of all your credit accounts, which also affects your score.

Even if you want a new credit card, I would think twice before applying for a store card on the spot. You could get a more lucrative welcome bonus from any one of Canada’s best credit cards, and you don’t have to worry about getting bombarded with retail promotions and offers you’ll probably never use.

3. Using the wrong rewards card entirely

Finally, you could be missing out on great rewards or cash back simply because you’re using the wrong credit card.

What does the right credit card look like? Well, for one, it will earn you the most cash back or rewards points for your shopping. For instance, if you spend gobs of money at Canadian Tire, you might want to have their Triangle Mastercard on hand for all purchases. Likewise, if you do most of your shopping online through Amazon, you’ll probably want to use their Amazon credit card to amass the most cash back.

If your credit card is earning you a meagre rate right now, take a look at some of the best rewards cards and cash-back cards that Canada has to offer. You might save yourself more money this holiday season simply by switching out your cards.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool recommends Amazon. Fool contributor Stephen Porrello has no position in any of the companies mentioned.

More on Personal Finance

Female hand holding piggy bank. Save money and financial investment
Personal Finance

Here’s Why a Big Emergency Fund Is a Terrible, Terrible Idea

Here's why saving more than six months' worth of expenses can be disadvantageous to your household.

Read more »

cup of cappuccino with a sad face
Personal Finance

5 Super-Simple Ways to Completely Ruin Your Credit Score

Building your credit score takes time, dedication, and smart decisions. Tearing your credit score apart — well, you could do…

Read more »

Young woman sat at laptop by a window
Personal Finance

5 High-Paying Side Hustles That Could Help You Save for Retirement in 2022

If you're struggling to save for retirement, here are five side gigs that could give your retirement fund a boost.

Read more »

Hour glass and calendar concept for time slipping away for important appointment date, schedule and deadline
Personal Finance

The Tax Deadline Is Almost Here! Here Are 5 Things You Need to Know if You Haven’t Filed Yet

The deadline to file your taxes is May 2. If you haven't started yet, here's what you should know.

Read more »

consider the options
Personal Finance

New to Investing? Be Sure You Avoid These 5 Newbie Mistakes

If you're new to investing, here are five big mistakes you should watch out for.

Read more »

Couple relaxing on a beach in front of a sunset
Personal Finance

Lazy Canadians: Here’s How You Can Make $200 Per Week in Passive Income

To earn $200 a week, invest money in high-quality stocks or ETFs.

Read more »

gas station, convenience store, gas pumps
Personal Finance

Costco vs. Canadian Tire: Which Rewards Card Will Save You More on Gas in 2022?

The CIBC Costco Mastercard earns 3% back at Costco Gas, and the Canadian Tire Mastercard earns 10 cents per litre.…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Personal Finance

Finally! Apply for a CIBC Costco Mastercard Now to Get a Welcome Bonus!

From now until December 31, 2022, CIBC will give you a welcome bonus on the new CIBC Costco Mastercard.

Read more »