It is no news that having a credit card gives you certain perks; it is otherwise a significant asset. However, when misused, it can affect your financial status, including damaging your credit score and loss of extra funds. Nevertheless, it is not difficult to adopt a good habit when it comes to credit usage, but first of all, it is essential to take note of common credit card mistakes you could be making, which include;
1. Opting for cash advances
This is one common mistake, and riskiest move credit card users make without realizing it. Sure, cash advances help you sort out some financial situations, but they are still expensive short-term loans. A cash advance on your credit card attracts an excessive cash-advance fee, which comes with a high-interest rate. Moreover, from the moment you take out the loan, the interest charges start building up and increasing continuously. It is beneficial to avoid taking a cash advance, and if it can’t be helped, then it is crucial to pay off the advance immediately.
2. Late payment of bills
Missing or late payment of bills can have a significant effect on your credit score. You might be facing a financial dilemma, and instead of contacting your creditors, you rather chose to ignore the account. If this continues, usually, you are bound to receive an alert that your credit score has dropped. If you are late in paying your bills consistently, you will not only be made to pay a late fee, but there is every possibility that your card company will also increase your interest rate.
3. Continually applying for new credit cards
it is important to only apply for credit cards when necessary because a new inquiry appears on your credit report anytime you apply for a new credit card and having too many can lower your credit score. Also, with constant inquiries, there is a great risk of appealing to lenders.
4. Maxing out your credit cards
It is never a good idea to use every available credit on your credit card as your credit score can be lowered due to a high utilization rate. Your utilization rate is affected by the amount of credit you use, which is why it is beneficial if your utilization rate is low. However, if you are still able to pay your bill even when you get too close to your limit each month, then you can contact your credit card company for a credit increase.
5. Closing a credit card account
Choosing to close your credit account because you have no use for it might seem like a logical idea; however, this could affect your credit score negatively. When you close an account, it affects your credit utilization ratio, which is why it is not advisable to close a credit card account.
6. Failure to review billing statement
Most people have a relaxed attitude towards reviewing charges that appear on their account; however, it is essential to review the transactions that are listed on your bill in other to make sure that they are accurate. It is a way of quickly spotting and taking swift actions against fraudulent activities. Reviewing your billing statement is also a way of checking for errors and generally verifying that there is no problem.
7. Choosing only to make a minimum payment
Although it is essential to make at least the minimum payment, it is, however, not advisable to only pay the minimum due. Failure to make full payment of your bills can result in not only debts but also an unnecessary increase in interest charges.
Also, if you choose to pay only the minimum, then it is bound to take a longer time to pay off debt.
8. Failure to see the full potential of your credit card
Some credit cards provide a lot of benefits for their users, which they might not be aware of. Better knowledge of your credit card capabilities helps you to understand its value, which is why it is essential to read the fine print to learn about how you can get more out of your credit card.
9. Using a wrong credit card
if you have been using the same credit card for a long time, it is vital to take note of whether it still serves its purpose. Most people feel it is easier to continuously use a credit card without changing it because of the stress involved in the process, however choosing to get a new one might show you precisely what you are missing in the long run.
10. Choosing to have a credit card
No one can deny that having a credit card provides you with a lot of benefits, however, if you don’t know how to plan and stick to your budget or you are faced with the problem of constantly overspending then having a credit card is not the best choice for you as piling up debts on your credit card can affect your monthly cash flow. However, if you feel you still need a credit card, then choosing one with a low APR can help you practice how to limit your spending.
It is not a bad idea to have a credit card, but it is, however, essential to know about your credit card so you can learn how to use it responsibly while still taking advantage of its benefit.