Smart Use Of Credit Cards: 6 Mistakes To Avoid

The popularity of credit cards has increased rapidly in the last few years, as people have now become more aware of its features and benefits. Credit cards not only help you make expensive purchases but also contribute to building a strong credit profile if you use the card responsibly. However, there are some mistakes that can have a negative impact on your financial life and can also harm your credit score. This article explains some major credit card mistakes that you should avoid.

1. Withdrawal of cash from credit card

A part of your credit limit is also available as cash limit. Which you can remove with the help of ATM. However, most credit cards start charging the amount withdrawn from day one and a separate cash advance fee is also charged on each cash withdrawal. Additionally, purchases made after cash withdrawal usually do not have an interest free period until the entire outstanding amount is repaid. This may involve many more charges that may be difficult to pay, which increases the risk of falling into debt trap. Therefore, it is advisable to avoid withdrawing cash using your credit card unless it is a last resort in a financial emergency. Even if you have to choose this option, repay the withdrawn amount as soon as possible to avoid additional charges and interest.

2. Spending more than your paying capacity

Many people sometimes spend more than their payment capacity through credit cards. Due to which credit card balance increases and there may be difficulty in making payments. In such a situation, interest on the outstanding amount, late payment fees and additional costs on new transactions keep getting added, due to which your debt keeps increasing. To avoid this, the best way is to create a monthly budget and stick to it and spend only as much as you can pay in time when the bill arrives.

3. Paying only the minimum amount

If you cannot pay your credit card bill in full by the due date, you have the option to pay the minimum due amount. While this option helps avoid late payment fees and negative effects on your credit score, it also comes with huge costs. When you pay only the minimum due amount, charges/interest start being charged on the balance as well as any new transactions made with the card. Credit card finance charges can be as high as 45% per annum, or even higher in some cases, which substantially increases your loan burden. If you make minimum payments for several consecutive months as well as make new purchases with your card, you may soon fall into the debt trap. Therefore, it is advisable to pay the full amount of the bill on your credit card every month. If you cannot pay the outstanding amount in full, you should consider converting your loan to EMI or balance transfer.

4. Not using reward points and benefits received

Most credit cards come with their reward programs, cashback offers, and other benefits. However, some card holders fail to avail these offers and rewards due to lack of information or carelessness. It is most important to choose the right card for your different needs. For example, if you are booking a movie ticket, a discount card on a movie ticket will be more beneficial than a normal reward card. It is important not only to earn reward points but also to redeem them at the right place and in the right way.

5. Using the entire credit limit

Credit utilization ratio shows how much of your credit limit you have used. If you overuse your credit card, it will not only make it difficult for you to pay your dues in full, but the card issuer will feel that you are Credit Hungary, which will impact your credit score. However, if your credit utilization ratio is high and you are paying the bill on time without default, it will not have a negative impact on your credit score. Nevertheless, it is considered good to have a credit utilization ratio below 30% to maintain a better credit score.

6. Applying for multiple credit cards in a short time

Applying for multiple credit cards at the same time to increase your spending power and various benefits may seem tempting, but doing so has a negative impact on your credit score. Every time you apply for a credit card, a new inquiry appears in your credit report. The more hard inquiries you have in a short period of time, your score will decline. Moreover, it can be a bit challenging to pay the annual fees, bills on time and use the rewards properly for each card. You don’t see Credit Hungary so first carefully assess your need for a new card and maintain a gap of at least six months between applications.

Read Also: