4 Credit Card Lessons I Learned the Hard Way

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Credit cards are a tricky financial product. If you use them to your advantage, top credit cards can help you save through the rewards and other perks they offer. But if you're not careful, they could end up costing you money and damaging your credit score.

People often learn as they go with credit cards, so it's normal to make some mistakes here and there. While I get a lot of value from my cards now, I made a few big mistakes when I was younger.

1. Don't spend money you don't have

The danger with credit cards is how easy they make it to borrow money. You can spend as much as you want, up to your credit limit. You're also not required to pay it back right away. You need to at least pay the minimum, but on large balances, that's normally only about 2% of what you owe.

In my early 20s, I fell into the common trap of spending money I didn't have. I'd rationalize it by telling myself that I'd earn the money by the time my credit card bill was due in two or three weeks.

When you spend money you don't have, you're constantly playing catch-up. It's nearly impossible to get ahead financially. You won't have any extra money to save or invest, since you've already spent it. You'll also be in trouble if anything unexpected happens, such as an emergency expense or a week where you're sick and can't work.

2. If you have a high credit score, take advantage

I've always taken good care of my credit score. Most importantly, I've never missed a payment. Your payment history is the biggest factor in your credit score, and when you pay bills on time, that helps build your credit.

Even though I quickly built a high credit score, I didn't take advantage by getting a quality card. I didn't have any idea that there were cards with sign-up bonuses worth hundreds of dollars or useful travel perks. I spent years using a basic, no-frills card that earned 1% back on everything.

Credit card companies reserve their top cards for people with good or excellent credit. If you have a credit score of 670 or higher, that's usually enough to qualify for some of the best cash back cards and travel cards.

3. Always spend enough for your card's sign-up bonus

Lots of rewards cards have sign-up bonuses for new cardholders. How it works depends on the card, but most sign-up bonuses have a spending requirement. For example, spend $1,000 in the first 90 days, and you'll earn $250 in bonus cash back.

A sign-up bonus is one of the fastest ways to earn rewards. It's also typically an all-or-nothing deal. You either meet the spending requirement and earn the bonus, or you don't spend enough and miss out entirely.

As you may have gathered, I once did the latter. I got the spending requirement confused, thought I had spent enough, and didn't realize my mistake until it was too late.

Keep careful track of your spending when you're trying to earn a sign-up bonus. Remember that you can always contact the card issuer to confirm that you've spent enough. Some card issuers even have bonus trackers that you can view in your online account.

4. Watch out for transactions that could be considered cash advances

A cash advance is a way of getting cash using your credit card, and it's one of the most expensive types of credit card transactions. There's a cash advance fee, with many card issuers charging 5%. Cash advances also usually have a higher APR, and you get charged interest immediately. There's no grace period like there is with purchases.

With all the costs involved, cash advances aren't a good idea, unless it's an emergency and you have no other options. Now, you might be thinking all you need to do is avoid using your card at an ATM. But there are other types of transactions that can be considered cash advances, including:

• Sending money through payment apps
• Wiring money
• Using convenience checks offered by your card issuer

In my case, I once paid my rent with a convenience check, not realizing that was a cash advance. If you're ever in doubt about whether a transaction could be a cash advance, do an online search or contact your card issuer to ask.

While I would have preferred not to have made these mistakes, they were all good learning experiences. It's possible to come out ahead with credit cards -- I now get thousands of dollars in value from mine every year. It's all about knowing how to get the most out of them and what not to do.

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