Having a credit card is as common as having any other daily use item these days. Everyone has become so much dependent on credit cards so that they find it hard to manage their finances without these cards. But, every credit card issuer must be aware of the fact that using a credit card responsibly is not a very easy task. However, some people do it easily, but others find it difficult to make the best use of their credit cards and make several credit card mistakes, resulting in having a negative mindset about credit cards.
Using credit cards is not at all disadvantageous as long as the card is in the right hands. It is the cardholder who uses it in the right way or in the wrong. If you are new to the world of credit cards, it is advisable for you to be aware of the things that you must avoid while using a credit card. Keep reading the article to understand the 7 biggest credit card mistakes to avoid if you want to get all their benefits:
Getting a Credit Card Without Research
Many individuals nowadays go with the first credit card offer they see and this is one of the first and worst credit card mistakes they do. To make the maximum benefit out of a credit card, you need to keep a few important things in mind. The first thing is to understand your spending behavior, i.e, understand what are the categories on which you the most and where you spend the least.
After analyzing your habits, the second necessary step is to filter out credit cards that fulfill your requirements. Then, you can compare credit cards on the basis of their benefits and fees & charges so that you can pick the one that benefits you most with minimum charges. It is never a good idea to get a card that doesn’t meet your spending habits. For example, if you spend most on shopping but you get a travel credit card, you will not get any such great benefits using it.
Making Only The Minimum Payments
A lot of credit card holders think that making only the minimum payments every month is enough, which is not at all true. Paying only the minimum due amount can help you avoid the late payment fee, but it will invite high-interest charges for sure. Not only this, but the debt on your account keeps increasing, which may result in your poor financial health later. Therefore, it is highly advisable for all credit card users to try paying their full outstanding each month in order to avoid interest charges and to maintain a good credit score. Even if you are not able to pay the full outstanding all at once, try to convert it into no-cost EMIs so that it doesn’t affect your credit score and you can pay it without so many additional charges.
Ignoring Credit Card Statements
Credit card statements are the documents that are received by credit cardholders at the end of every Billing cycle. It contains all the information about the account, including total outstanding, minimum amount due, payments due date, available credit limit, and many more. Other than this, all the transactions done within the last billing cycle are mentioned in a statement.
Individuals generally often their credit card statements or they just check for the total outstanding amount. But, this is not how you are supposed to do. Credit card statements need to be read thoroughly every time you receive them. It is because you can check if all the transactions have been mentioned correctly or not.
Sometimes, there might be repeated transactions or some transactions you didn’t even make. In such cases, you can contact your credit card customer care and ask them to get it corrected. If there are some unauthorized transactions (transactions that were not made by you), there are chances that someone else is misusing your card and you should change all your passwords and PINs immediately.
But if you ignore your statement, you will never know that some fraudulent transactions are being made and the fraudsters will keep misusing your credit card for their benefit.
Banks/card issuers provide you with the facility to withdraw cash using your credit cards, but you must know that it is never a good idea until you are in a real emergency. Withdrawing cash with your credit card has two major drawbacks.
- The first one is: you have to pay a cash advance fee which is generally 2.5% of the transacted amount subject to a specific minimum amount.
- The second thing is that you don’t get an interest-free period for cash advance transactions, i.e, the interest starts accruing on it from the very next day of the transaction.
However, you can withdraw the cash in an emergency situation because this is why the facility has been provided, but try to avoid doing this as long as possible.
Utilizing 100% Credit Limit
If you are being provided with a credit limit of Rs. 2 lakhs, you are not supposed to utilize all of it every month. If you are doing this, you are doing one of the worst credit card mistakes. To maintain or build a good credit history, it is advisable to utilize only 30% or less of your total available credit, and if you use it more than that, your credit score may get affected badly.
You must try not to spend all of your credit limit and if you feel like your credit limit is really low, you can either ask your card issuer to increase it or get another card with a higher limit so that your credit utilization ratio remains below 30%.
Making Unnecessary Large Purchases
Many individuals consider credit cards as easy access to money and they spend on unnecessary things. But, this is one of the biggest mistakes credit card users make. You should always keep in mind that you also need to repay the amount you are spending and hence it is never a good idea to spend more than you can afford to pay later. It is true that credit cards allow you to make big purchases for which you can pay later. But, before making any large purchase on your credit card, you should think carefully about whether you really need it or not.
Not Checking Your Credit Report & Score
Many credit cardholders think that checking their own credit report will have a bad impact on their credit score and they never check it. But, this is one of the biggest credit card myths. Checking your credit report and score is not disadvantageous in any manner. When a card issuer checks your credit report, it impacts your credit negatively, but not when you check your own score. In fact, everyone should check their credit score regularly to understand what are the mistakes they should avoid in order to improve their score.
You can save a lot using credit cards if you use them responsibly, but doing any of the above-mentioned credit card mistakes can make you afraid of using credit cards. So, you must make sure that you are doing everything that helps you build a strong credit profile instead of doing mistakes that lead to a drop in your credit score.
Suggested Read: 7 Ways to Increase Your Credit Score
The most important thing is to make your payments always on time as this is the biggest factor that is considered while calculating your credit score. Also, avoid taking cash advance as long as possible and if you want a large amount, you can apply for an instant loan against a credit card.