Credit cards that are issued by almost all banks and financial institutions in the country are a powerful tool. The cards help individuals to pick up things and pay for them at a later date.
This is one of the major benefits which prompt individuals to avail of a credit card in today’s world.
The card if used judiciously can help the individuals build his/her credit score. There is no denying the fact that having a good credit score is very essential in today’s world as banks look at it prior to approving loans, credit cards, etc.
While a credit card is useful in many regards, the damage it can do to the individual is endless, if the card is not used properly. Some of the damages that can happen to the individual for not using the credit card properly are – falling into debt, low credit score, etc. Here, we take a look at certain mistakes that need to be avoided by credit cardholders to ensure that things like the ones mentioned above do not occur.
01. Paying Only the Minimum Due Amount
One of the common mistakes that credit card holders make is paying only the minimum amount that is due on the credit card. While this move is used by most banks and financial institutions to lure customers, it must be avoided at all costs.
The reason behind this is that making payments of the minimum amount increases the time that is needed to pay off the remaining amount of the card. Apart from this, the individual ends up paying a lot more amount as interest.
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02. Keeping a High Balance in the Credit Card
Individuals who use a credit card must also look to avoid maxing out the credit limit. This is irrespective of the fact whether the amount is cleared out before the due date. Maxing out the entire credit limit can result in a low credit score as the credit utilization of the individual is calculated by dividing the credit card balance by the credit limit. It needs to be mentioned that getting close to the credit limit puts the individual at risks like over-the-limit fees and penalty interest rates.
03. Not Utilizing the Earned Reward Points
One of the best things about credit cards is that individuals earn reward points for almost all transactions that are carried out with the help of a credit card. However, many cardholders fail to utilize the reward points that they earn. This is a mistake that needs to be avoided because the reward points can be utilized to avail of other items from the bank’s catalog.
04. Closing an Old Credit Card Without Any Good Reason
Another mistake that needs to be avoided by credit card holders is closing an old credit card for no good reason. This is because closing a credit card for no valid reason can affect the credit score of the cardholder. However, there are instances when closing a credit card can be beneficial. Such instances are –
- if the individual is paying an annual fee even though the card is not being used.
- if the credit card is a secured one and would result in the individual getting back the deposit.
- If the individual faces spending problems and wants to get rid of the temptation.
05. Availing a Loan on the Credit Card
An individual must at all costs avoid availing of a loan on the credit limit. This is because it is a terrible idea irrespective of how tempting it might sound. Banks and financial institutions charge very high-interest rates on credit card cash advances. They come with no grace period which means that interest starts accumulating immediately.
Other reasons to not avail of a loan based on the credit limit are – the individual needs to pay an upfront fee which is usually 5% or more and the fact that costs always outweigh the benefits associated with a cash advance.
06. Being Unaware of the Benefits that Come with the Credit Card
Most credit cards offered by various banks and financial institutions are laced with various benefits. So, not knowing about the benefits of the credit card which the individual uses is a mistake. To ensure that more value can be drawn out of the credit card, being aware of the benefits is a necessity for the cardholders. Individuals must read about the features of the credit card and make sure that it is used judiciously.
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07. Paying the Credit Card Dues Manually
Paying the credit card dues manually is another mistake that needs to be avoided by credit cardholders. This is because there are instances when the due date to make the payment can be forgotten by the individual. So, the best thing to do is to opt for autopay. This ensures that the individual can avoid paying late fees and taking a hit on the all-important credit score.
08. Not Reporting of the Lost/Stolen Credit Card
Another common mistake that credit cardholders commit is not reporting the case of lost or stolen credit cards to the issuers. It is very important to report the loss of the credit card because once it is reported no fraudulent transactions can be carried out with the use of the credit card. It needs to be remembered that if fraudulent transactions are carried out using the card before the matter is reported to the issuers, the individual will have to incur the charges.
09. Availing Too Many Credit Cards at the Same Time
Using too many credit cards at the same time is another mistake that needs to be avoided by credit cardholders. Multiple credit cards in the individual’s name raise doubts in the minds of the banking authorities. Hence, it is advisable not to utilize multiple credit cards at a time.
10. Let the Credit Card Get Charged-off
The charge-off listing adversely affects the individual’s ability to get credit cards and loans. Hence, letting the credit card gets charged off is one of the worst things that can happen to a credit cardholder.
To avoid this, individuals must bring delinquent accounts current before it gets to the point of being charged off. It needs to be remembered that it takes six months of missed payments to get to charge-off status.
Making sure the mistakes mentioned above are not committed can lead to the individual having a good time using the credit card. Using the credit card judiciously will ensure building a good credit history.