“With great power comes great responsibility.” Well, it indeed is very true. If you want to take an example, then let’s talk about credit cards.
Credit cards are amazing because you can buy almost whatever you want with one swipe. Be it online or offline; you are just one swipe away from buying your things and paying your bills.
However, it doesn’t mean that it is that easy. There are many more things which are essential too.
Using a credit card isn’t that easy. If you are using it, you need to take care of it as with your one single mistake, and you can lose a lot. So, let us talk about the 15 worst credit card mistakes everyone should avoid.
1. Submitting applications again and again
Okay, so if you are going to have your first credit card ever, then obviously, you would be on cloud nine and really excited.
The most basic mistake people often make submitting too many applications for getting a credit card in a very short span of time. If you do so, you will find it hard to get a credit card because it will reflect on your credit score, which isn’t good anyway.
In simple terms, before you get a credit card, the issuer will check your credit history carefully because they have to ensure that they are safe while issuing you a credit card.
However, if they find too many inquiries on a credit report, you will be considered as a high-risk borrower.
2. Having too many cards
Having too many things can lead to too many problems. Similarly, having too many credit cards can lead to many issues. Firstly, you need to think and figure out, do you really need one more credit card or are you going to have it because you can?
With each application for a credit card, you are going to lose your credit score. Especially if you apply for too many cards within a short period, it will leave an adverse impact on your credit report.
Also, even if you get new cards, your limit won’t get increased for long, and you have to pay the fee for all those cards you will have. Hence, if you need one more card, apply for it after six months.
3. Not knowing the terms and conditions
If you are using a credit card, it is important to know the terms and conditions of the same. And if you think it is not that important, then you are highly mistaken.
Things like, knowing how the company handles late payment, how you can use the card, what are the restrictions, and such are important.
If you know it, you will be able to manage it the same way, and it will increase the chances of increasing the credit limit and improving your credit report.
So please make sure that you review the terms and conditions of your credit card once or twice a year.
4. Ignoring the billing statement
No matter how busy you are, you must not ignore your bill statement. If you don’t do that, you can miss your payment due date, or you may pay even less than you should remain current.
Also, if there is any fraudulent activity found in your account, you can track it through your billing statement easily.
In simple words, it is important to check the account so that you can ensure if the charges applied are accurate and all the transactions are made by you only.
You may also miss any important announcement about the changes in terms of your credit card if you ignore the statement. Hence, please make sure.
5. Making minimum payments
If you are using a credit card, you will see that the issuer will ask you to repay the balance by making the minimum payment as well. It indeed is an easy way if you lack funds, and many people prefer it.
However, do not do that at all. If you pay a bit more every month, then it will help you in paying your balance at a very low rate. Otherwise, if you keep paying the minimum payment, it will increase the amount of time for settling your credit card balance, and also, you will end up paying a high amount of interest on your credit card balance.
6. Not paying the bills on time
If you are not paying your bills on time, then you are going to face a tough time. There will be a due date given every month for paying the bill. You need to pay it on time; otherwise, you will have to pay late payment fees along with the interest charges.
If your account is overdue by more than two months, then the issuer will also increase your interest rate along with a penalty charge percentage rate of at least 29%.
Also, it will again leave a negative impact on your credit report. As timely payments have an impact of 35% in your credit report as the card issuer will report the payment history to the consumer credit bureaus, and they are the ones who can damage your entire credit report.
7. Misunderstanding introductory 0% APR
As we mentioned above, you need to be careful while reading the terms and conditions. One of the biggest mistakes you can do is to misunderstand your introductory 0% APR. All such offers come along with a long list of terms and conditions, and one thing that is confirmed is they will not last forever.
If you are also enjoying the 0% APR offer, then you must know the time when it will end because all your unpaid balance after this offer will get charged with your regular APR.
Also, you must know that there are only some transactions eligible for the 0% introductory APR offer.
Note that all the cash advances, which you withdraw from ATM via credit card are not included in 0% APR promotions.
8. Loaning your credit card
For the sake of some money, many people loan their credit cards to someone else. But that isn’t safe at all, even if the person is known. If you are loaning your credit card, then all the purchases they make will be made by your card, which means you will be responsible for them.
If they are not paying the bills on time, it will be you who will be responsible for it, and it will also affect your credit report. Hence, it is advisable not to loan your credit card to someone else.
9. Forgetting to report the stolen card
If your credit card is lost or stolen, then the first thing you need to do is to contact your issuer about the same and report block.
If you do that, you will not be held liable for all those fraudulent transactions which may happen from your card.
But if you don’t, you will be the one paying for it. To do it, you either can do it through the banking portal, or else; you can get in touch with your issuer directly. Make sure that you do it instantly.
10. Not setting a budget
Overdoing something is never healthy, and when it comes to spending money, it is never good.
If you are using a credit card without a fixed budget, you will end up spending more, and in the end, you will be the one paying the high interest for all of those things you have purchased.
Hence, it is advisable not to exceed your credit limit because if you do that, you will have to pay a lot of interest, which isn’t worth it at all.
Always make sure that whatever you purchase from the card is necessarily important.
11. Closing all your old credit card accounts
If you are using a credit card for a long time and now since you have a new one, you are thinking of closing it, do not do that. I repeat, do not do that. If you retain a long-term account, then it can help a lot in building your credit report strong.
So we suggest leaving the credit card as it is and do not use it. If you do that, the credit card’s limit will lower the credit utilization ratio since you are not using it anymore, and because of this, your credit report will be improved.
12. Spending for the sake of rewards
Yes, it is true that if you spend more through your credit card, you will earn more rewards, which can be used in redeeming a cashback or a gift later. However, it is not advisable to do that. If you do that, you will have to repay the amount with interest, and it can be dangerous since it may get you in debt, which isn’t a good thing at all.
Hence, use the card whenever you have to do it and make sure that you don’t spend more than 30% of the limit of your credit card.
13. Withdrawing cash again and again
You can withdraw cash from your credit card via ATM, but that doesn’t mean you should. Because if you withdraw money from ATM, you will have to pay a high rate of interest on it.
You will have to pay around 2-4% per month, and the interest will be calculated from the very first day of your withdrawal. So unless it is not the only option left, don’t use it.
14. Selecting the wrong card
There are so many types of credit cards available. So you need to know which one do you actually require before you get it.
When you select a credit card, the more important thing is to understand the types of cards available and then choose based on your usage and not on the deals and reward points.
E.g., if you hardly travel in a year but since those cards are giving you a better deal, it does not mean that you should go for them because, in the end, you will be paying the annual charges every year, which does not make any sense.
15. Not redeeming the points before the expiry
Lastly, if you are earning some reward points on every purchase, then please use them within time. If you don’t know, there is an expiry date set for the reward points as well. Hence, if you do not use them before the time, they will get expired.
The utilization period will be almost 2-3 years for the points, though. You can confirm it in their terms and conditions easily since many issuers mention the point expiring information in their bill statement as well. So you can confirm it from there too.