Making purchases with a credit card is one of the best ways to establish a credit history. Despite its benefits, the card may cause more harm than good if you don’t act responsibly. Your credit score may be checked when applying for a loan or an EMI card. Despite the convenience of a credit card, keep a close eye on your spending. You may damage your credit score by misusing credit cards rather than improving them. It is best to avoid common credit card mistakes and save yourself from unnecessary debt. It’s essential to develop good financial habits and pay credit card bill payments on time.
Below are some common credit card mistakes that can affect your credit rating.
Paying only the minimum balance due
If you cannot pay your credit card bill payment in full, you can convert the entire outstanding balance or qualified big purchases into EMIs or use the credit card balance transfer feature. You might also examine alternate financing choices, such as a pre-approved loan against a credit card or a personal loan. These loans have substantially lower interest rates so they won’t endanger your long-term objectives. You can also liquidate low-yield investments to pay your debts if you have any.
Maintaining an incorrect credit utilization ratio
CUR, or credit utilization ratio, measures how much of your credit card limit has been used. According to credit bureaus, having a credit utilization ratio over 30% is considered credit hungry. Therefore, it is important to maintain a low CUR (below 30%) to prevent negative credit report effects. If you frequently branch this percentage, you may want to consider increasing your credit limit by requesting your credit card issuer, or you may wish to apply for an additional credit card to spread your expenses. Spreading your expenses across more than one card will reduce your credit utilization ratio.
Missed or late credit card payments
Missing your bill due dates or making late payments are other signs of irresponsible usage of credit cards. Payments less than 30 days late will not affect your credit score. In contrast, your credit score is likely to suffer if you are more than 30 days late with your payments. Make sure your credit card bill payment is on time by setting up automatic payments, setting calendar reminders, and enabling email notifications.
Using your credit card to withdraw cash
Your credit card can be used to withdraw cash in the same way that a debit card can. However, you must keep in mind that such withdrawals are quite costly since they incur not one but two fees: a cash advance fee and a finance charge. Finance costs are applied to cash withdrawals from the time the transaction is made until the money is returned. These fees might range from 23% to 49% per year. In addition, any new purchases made with your card will be subject to interest charges. You’ll also have to pay a cash advance fee on top of that. Banks typically charge 2.5% to 3% of the amount withdrawn as a cash advance fee. You can opt for the Bajaj Finserv RBL Bank credit card, which charges no interest for cash withdrawal for up to 50 days.
Not using accrued rewards points by the expiration date
Credit cards offer benefits such as waived annual fees, complimentary access to lounges, free movie tickets, and generous reward programs for users. The reward points on most credit cards have a predetermined validity period. This time usually lasts between two and three years. Users may miss the expiration date and, as a result, lose all of their reward points. You should always read the terms and conditions of your selected credit card’s reward program and make sure that you may redeem your points before they expire.
Final Thoughts
If you make mistakes with a credit card, you risk incurring unnecessary debts and damaging your credit report. In contrast, you can enjoy maximum benefits from your credit card if you are a responsible user. Not only that, but you will also improve your credit score over time. To prevent additional charges, you should thoroughly read all of the terms and conditions associated with your card and avoid making the mistakes mentioned above.
