Credit cards are
everyone’s gateway to whole different world. These cards may be small and
unassuming but the power they wield over mere mortals is unparalleled. Credit
cards are similar to miniature loan providers without having to avail approval
and furnish documents every time a transaction is required. All individuals
will have to do is pay their credit card bill by the end of the month or
whenever their billing cycle is. However, credit cards are provided by the bank
or financial organization based on the individual’s income and also their
credit score if it is not their first card.
These cards come with a
number of additional benefits such as card offers and such on dining rewards,
airline ticket discounts, lounge access, attractive cashbacks and so on.
However, these will not matter if individuals do not utilise their cards in the
right manner. Although credit cards come with a large number of advantages, if
not used correctly, can be detrimental to the individual’s credit history.
Given below are some of
the common mistakes that individuals make when they use their credit card-
● Having multiple credit cards
This is one of the most
common credit card mistakes that is noticed. There are a number of credit cards
available in the market today with a plethora of offers. Individuals receive a
number of offers from banks regularly and are tempted by the supposed advantage
that is provided by the said credit card. However, although different credit
cards come with different offers, they may cause more harm than good.
Since these cards
provide different offers and schemes, individuals tend to use them all
resulting in their having to pay a high fee for all these cards by the end of
their billing cycle, which the individual may not be able to afford. This practise
in turn, will lead to his/her falling deeper into a debt cycle.
Individuals need to
stop and think if they really need a credit card if they receive an offer. They
will have to remember that offers may not be permanent. Credit cards should not
be considered as a supplementary income. Although adding cards will help the
individual’s credit score by reducing their credit utilization ratio, the
amount of debt will rise if all bills are not paid on time.
● Paying just the minimum balance
This is one the most
common mistakes that are made by credit card holders. Most individuals believe
that they can continue using their credit card comfortably by only paying the
minimum balance that is necessary. However, far from being convenient, doing
this will only lead to the cardholder going deep into debt. If individuals do
not pay off their credit card payment
bills fully each month, it can result in interest rates adding up which can
result in a hefty amount. Therefore, as much as possible try to pay the entire
bill in one go or at least more than the minimum balance amount.
● Exceeding Credit Limit
It is important to
ensure that credit cards are not misused in such a way that the credit score is
affected. Another common credit card mistake that is noticed by most experts is
the usage of credit cards over the limit that is set. It is easy to think that
credit card bills can be paid easily after sometime but it does not work this
way. Customers should understand that debt utilization ratio is a huge factor
that determines their credit score. Ideally, one should never keep a balance of
more than 30% of their credit limit.
● Closing Credit Accounts
It seems sensible to
close a credit card account if one is not using that particular card. However,
contrary to popular belief, doing so is detrimental to the individual’s credit
score. This is because the credit utilization which is the ratio of the credit card balance transfer to
the credit limit has an impact on the credit score and should always be below
30%. By cancelling a card, the credit limit of the individual goes down which
reflects poorly in the individual’s credit report.
● Withdrawing Money via Credit Cards
A credit card mistake
that most people are aware of, withdrawing money using credit cards should be a
big no! no!. This is important for the simple reason that the interest charged
on such transactions are exorbitant. Unless that particular individual makes
the complete bill payment, the interest charged will be high and difficult to
pay off. Therefore, taking cash through a credit card should never be done
unless extremely urgent.
There are a number of other mistakes that credit card
holders make such as not reading the fine print of their credit card document,
choosing a credit card because of its offers, paying a high annual fee and
such. However, taking care of the above points and using their credit card
judiciously will ensure that individuals get the best out their credit cards
without hurting their score as well.
This article is contributed by Ileyana Lyardson, who is a content marketer and financial writer by day and a reader by night. She has 7 years of experience in the financial domain, predominantly in the insurance business. She is passionate about travelling and also maintains a blog where She offers financial advice and review of insurance products to individuals planning their featured life.