Top 4 Credit Card Mistakes to Avoid
Credit cards are becoming the most popular way of making payments as people no longer prefer carrying cash. The whole process of paying through credit cards is effortless. If you are using the “tap and pay” feature on your credit card, you only have to flash your card at a retail store or have it saved for online payments. Moreover, cardholders can avail a variety of discounts and cashbacks.
However, we tend to follow certain credit card habits that are harmful to our finances. Here is a list of the top 5 credit card mistakes one needs to stop to maintain a healthy credit habit.
Four Credit Card Mistakes You Must Avoid
Here are 5 common mistakes you must avoid while using credit cards. These are necessary for maintaining your finances and keeping your credit score high.
Skipping Thorough Research
Very often, people tend to purchase credit cards without proper research. They tend to follow word of mouth or fall into the marketing traps of credit card companies. However, this can be harmful to one’s finances.
Before opting for a credit card, consider researching its terms of usage. This includes the rate of interest, additional charges, rewards, yearly charges and many more. You also need to take into consideration your spending habits, and financial goals.
Making Multiple Credit Card Applications
This is another mistake that every credit card owner must avoid. Many credit card holders prefer holding multiple credit cards. But every time they apply for a new card, the credit card company conducts a hard inquiry. Their credit score tends to drop during this hard inquiry.
Also, frequently applying for credit can paint a negative picture of you to lenders. They might consider you eager for loans and charge you higher interest rates. You should try clearing most of your outstanding amount before applying for new credit cards and ensure to leave some time between new applications.
Exceeding the Credit Limit
Every credit card owner must be aware of the credit limit while using their credit card. Experts suggest that an individual’s total credit balance usage must be below 30% only. Transactions above this limit can be harmful to one’s finances.
Many cards provide the option to continue transactions after overshooting credit limits. But they levy heavy penalty charges for this facility. Also, exhausting this limit means you need to pay a huge outstanding amount along with other penalties. Therefore, consider keeping your expenses below the limit.
Paying Only the Minimum Amount Due
This is one of the most common mistakes that first time credit cardholders make. Your credit card bill has two amounts – total due amount and a minimum amount due which is usually around 5% of the total amount. You should always pay the entire bill amount as even though you might not be charged a late payment fee, the bank will levy an interest rate on the rest of the amount in case you choose to pay only the minimum amount due.
Why Is It Crucial to Use a Credit Card Wisely?
Here are certain advantages of using a credit card prudently:
- Disciplined Financial Approach
By smartly, using a credit card you can maintain a disciplined financial approach. This will allow you to repay all your debts on time and avoid defaulting. As a result, you can easily opt for instant loans at lower interest rates.
- Increases Your Credit Score
By wisely using your credit card, you can boost your credit score and avoid it falling to an unhealthy level. Consequently, your credit report will reflect a positive image of your credit and repayment history.
- Helps You Tackle a Financial Emergency
When you choose and use your credit card smartly, you are likely to have a manageable outstanding amount. This helps you save finances for the future and manage an unforeseen financial emergency.
- Earns You Rewards
Many credit cards offer reward points which you can redeem to earn cashbacks and discounts. You can get discounts in retail stores, dining outlets and your favourite shopping and entertainment apps. Some credit cards let you get a waiver on fuel surcharges at petrol pumps. These offers will vary depending on the particular credit card.
You must consider using your credit card only with authentic merchants and retailers. This will prevent the chances of misusing your credit card PIN by perpetrators. You can also boost your credit score and have a proper financial plan in the long run by following the above pointers.
Frequently Asked Questions
- What are 5 good credit card habits one can follow?
Here are five good credit card habits one can follow to increase their credit score:
- Consider paying outstanding debts before opting for new ones.
- Study your credit report frequently
- Manage your debt-to-income ratio
- Pay your dues on time
- Should I repay only the minimum amount due while repaying my credit?
It is advisable to always pay your credit card bill in full as the bank will start to charge you interest on the remaining amount just after the payment due date.
- What happens when I stop using a credit card?
If you do not use your credit card for a long time, you might not be able to make the best of the benefits that the card offers. Also, if your card is not used for a really long time, the bank might also close your credit card account.
- Should I use a credit card every month?
If you do not use your credit card for a certain period, it starts accumulating additional charges. Therefore, it is important to use a credit card often, for both big and small transactions. However, you do not need to use a credit card for every purchase.