Ultra Rich People Make Credit Card Mistakes, Too. Here's What They Are

Credit cards are a useful financial tool and they are often very accessible to the average American. Research from The Ascent into the credit card habits of high earners showed that of those surveyed, just 9% of those earning $1 million or more per year didn't use credit cards at all (compared to 24% of the rest of us regular folks).

You might take this information to mean that one way to live more like the rich do is to use a credit card for regular purchases. It's definitely the case that doing so is the easiest way to build your credit and show lenders that you know how to handle (and repay) borrowed money. Plus, credit cards are a very secure way to pay, and some give you the chance to earn rewards, like cash back and points, on spending you'd have to do anyway. What's not to like?

Well, as the research shows, having an even higher income ($1 million or more) doesn't necessarily mean making all the right moves with credit cards. Let's take a look at some bad credit card habits of the rich, and learn the right credit card moves to make instead.

Carrying a credit card balance gets expensive

Credit card interest is expensive, and this is due to both the APR (which averages over 20%), as well as the fact that interest is charged daily and compounds extremely fast. Carrying a credit card balance can mean watching the amount you owe snowball over time, so to avoid this fate, it's best to only charge to a credit card what you can afford to pay off every month. Despite this, The Ascent's survey of rich credit card users found that just 33.07% actually pay off their balance every month -- while nearly 20% almost never do! With a net worth of more than $1 million, perhaps they are less concerned about how much of their money goes to pad the pockets of credit card companies.

Automatic payments can keep you out of credit card debt

It can be very easy to forget that you owe money on a credit card, especially if you have more than one card and the hustle and bustle of life gets in the way. Setting up automatic payments can help, because your bill will be paid automatically every month, eliminating forgetfulness and also helping you avoid those nasty interest charges (assuming you have autopay set up to pay off the card entirely every month).

Unfortunately, The Ascent's study found that a little less than 51% of those millionaires surveyed actually have autopay set up, and the remaining respondents make their payments manually. I'm not a fan of autopay myself, but I recognize its utility, especially when it comes to avoiding credit card debt and late payment charges.

Maxing out a credit card is a bad idea

You probably realize that maxing out your credit card (meaning, you've spent up to your credit limit) is one of the worst credit card moves you can make. Doing so can push your credit utilization ratio up past 30%, which can harm your credit score. And the more you owe on a credit card, the less able you might be to pay it off in a timely manner. And yet, over half of the respondents to The Ascent's survey admit to having done just that.

What are they doing right?

Thankfully, the rich do have some credit card behaviors worth imitating. In fact, they keep some of the best credit cards out there in their wallets. While Americans earning less than $1 million annually are more likely (72%) to have a cash back credit card, cash back cards still have an excellent showing for the rich (59% have one). Nearly half (49%) of those surveyed had a travel rewards card (the second most popular type of credit card). Both cash back and travel credit cards offer very attractive benefits, and if you're not already using one yourself, they're worth checking out -- after all, how can you go wrong with free money back on your spending and the potential to earn free flights and hotel stays?

Rich Americans are also more likely to have more than one credit card; nearly 70% of those surveyed had two or more. You might think that multiple credit cards can mean a short trip to debt city, but as long as you're paying off your balances and not charging more than you can afford to pay off, having multiple cards can be a great thing. Imagine having the ability to earn cash back or reward points on the biggest spending categories in your budget, such as groceries, dining out, or online shopping. It's unlikely that you'll find one credit card that rewards you handsomely for all three of these, but in my own wallet, I have one credit card to use for each.

Credit cards can be a great financial tool, as they're convenient, secure, and help you build credit. Just be careful to avoid the worst credit card habits of the rich -- pay off your balance every month, avoid maxing out cards, and consider setting up autopay to ensure you don't forget a bill -- and reap the benefits that credit cards have to offer.