Credit Cards work on the general principle of buy now and pay later. Apart from providing instant credit access, the cards also provide a host of other privileges including cashbacks, reward points, discounts and more. When used correctly, credit cards can be a powerful financial asset. Not only do these cards help to boost your credit score but provide you with a wide variety of other benefits. However they are oftenly mismanaged by some of the users.
5 common Credit Card Mistakes to Avoid
There are a series of mistakes people tend to make when they use their credit card which in turn can cause huge problems with the finances. The first-time card users are more prone to making such mistakes. Listed below are 5 common credit card mistakes you should avoid.
1. Making only minimum monthly payments
The credit card issuers makes it convenient to repay your balance by allowing minimum payments. However it is not advisable to only pay the minimum due. Not paying your credit card bill in full can lead you to fall in debt and thereby racking up unnecessary interest charges. Hence if you increase your monthly credit card payment, it will eventually help you to pay off your balance sooner and at a comparatively low cost.
2. Being late on your payments
Very often the first-time credit card users forget to pay their bills. Late or missed payments can severely affect your credit score, more adversely if you are more than 30 days past due. Also, late payments can incur extra charges and higher interest. To avoid being late, you can set a calendar reminder so that you don’t miss out on the due dates. You can also set up an automatic payment via your bank ensuring that the date and time are taken into account.
3. Overcharging your credit card
Using the majority or even all of your available credit limit cannot be considered as a good idea. In such cases, the utilization rate becomes very high which can eventually lower your credit score. A charge-off can affect your credit report as well as your credit score. If you are at the verge of exceeding your credit limit, try paying in cash for the subsequent expenditures. If in case you tend to often break the limit, either request the card issuer to increase your limit or get an additional credit card to increase the total credit limit.
4. Not knowing your APR and Not keeping a check on your billing statement
APR or Annual Percentage Rate is the yearly interest rate charged when you carry a balance month to month. The card issuers may levy an interest rate higher than your regular APR in case of late payments. Hence it is important to know your APR. Also if you ignore your credit card billing statement, chances are you can miss your payment due date or the important announcements related to changes in your credit card terms.
5. Taking Cash Advances and Spending on things that you don’t actually need
Taking out cash advance happens to be one of the riskiest possible things you can do with your credit card. As soon as you withdraw the cash, the interest starts accruing on the amount withdrawn. Also there is no grace period offered like in case of regular purchases and hence you will be likely to incur a high cash advance fee. Also it is important for you to keep track of how much money you are spending so as to avoid maxing out your credit card.
In order to avail the maximum of benefits, It is very important for you to know about your credit card. A part of which includes knowing about all the possible credit card mistakes one tends to make. Once you get the card best suited for your needs, you need to develop good credit card habits and use your card with utmost responsibility. By following certain precautions, you’ll not only establish a good credit history but you’ll be able to avail the maximum of the card’s benefits.