Stop Making These 10 Credit Card Mistakes Now
Whenever we look for someone’s financial advice, one term that almost all of us feel terrible about is credit cards. However, in reality, whether credit cards become a boon or a bane in your financial life depends entirely on your discipline towards their use and repayment.
So if you are one of those people who turns a blind eye to the benefits of credit cards and prefers to believe in the negativity that surrounds them, then in all likelihood you are at fault. You wonder how? Let’s go over some of the biggest credit card mistakes that are hurting your financial health in several ways.
1. Miss the due date for your credit card bill payment
Not paying your credit card bills on time? Is missing an invoice due date common? If the answers are yes, then it is time for you to put your socks on. As a credit card user, one of the most important things to keep in mind is when your bill is due. Depending on your billing cycle, you are assigned a specific due date for each card, by which time you must pay your outstanding contributions. And if you don’t, late payment fees as well as high finance charges would be levied by the credit card issuer, which is capable enough to burn a deep hole in your pocket. If you tend to forget due dates, use the auto debit feature or set reminders. There are plenty of apps to help you with this. All you have to do is set up the automatic reminder or debit feature as you like and then make sure you act on it. For direct debit, make sure your linked account has enough funds to pay the bill, and for reminders, make sure you pay the bill as soon as the reminder alerts you.
2. Repeatedly pay the minimum amount due
Do you feel the heat every time your credit card bill arrives? And to avoid paying that burgeoning bill, do you take the easy way out of paying off the relatively lesser amount in the form of the minimum amount owed? If so, then you must stop this immediately. Paying the minimum amount owed, especially if done repeatedly out of habit, is a safe gateway to the debt trap. Many credit card users mistakenly assume that repaying this minimum owed can save them from incurring various fees and charges otherwise levied for failure to pay dues on time and in full. However, this is where they go wrong. While repaying the minimum amount due on the due date may save you from late payment charges, high finance charges, which can be as high as 40-50% per year, would still be levied on unpaid contributions. And if you fail to even repay the minimum amount owed, you will incur late payment fees on top of that, on top of your credit score. And that’s not all. Failure to pay dues in full by credit card may also result in revocation of the interest-free period on new credit card transactions, until unpaid dues are fully refunded.
3. Withdraw money by credit card
Another mistake that hurts your financial health in not one but two ways is the habit of withdrawing money on credit cards. First, the cash advance charge is taken from the amount withdrawn, and second, the high finance charge is taken from the cash amount withdrawn. And the latter is taken from the day of withdrawal until full reimbursement. While finance charges are themselves enough to put a hole in your pocket, having to pay them with cash withdrawal fees is nothing short of an invitation to financial trouble, right? ?
4. Maintain high credit use report (CUR)
This ratio refers to the proportion of your total credit card limit that you use. For example, if your total credit limit is Rs 1.5 lakh and your credit card arrears are Rs 40,000, your CUR turns out to be around 26%. The CUR is one of the key parameters that credit bureaus consider when calculating your credit score. It is generally believed that financial institutions and credit bureaus view consumers with this ratio above 30% as greedy for credit, and therefore more prone to default. This is why the credit bureaus also tend to lower your credit score by a few points when you exceed that mark. Not only that, having a higher CUR also means that you are using a large portion of your credit limit to make purchases or transactions, which in itself illustrates your heavy reliance on credit, especially in the eyes of lenders and bureaus. credit.
5. Avoid increasing the credit limit
More often than not, many credit card holders tend to give up on the idea of increasing their credit limit. The idea of having an improved credit limit grabs them with fear of increased spending and, at worst, a debt trap. However, this is not true. A person who uses and pays off credit card bills in a disciplined manner doesn’t have to worry about an improved credit limit, which actually has multiple benefits. Whether the card issuer offers you the upgrade or you have requested it yourself, having a higher credit limit would give you more room to deal with financial emergencies, in the form of a higher credit limit to use. In addition, an improved credit limit would also lower your credit utilization rate (CUR), thus helping to gradually increase your credit score.
For example, if your current credit limit is Rs 75,000 and the unpaid contributions are Rs 50,000, your current CUR is around 66%. Whereas if you go for an improved credit limit, say Rs 1.2 lakh, your CUR drops to 41%.
6. Bomb credit card issuers with multiple applications
Whenever you apply for a credit card directly from the credit card issuer, the card issuer assesses your creditworthiness by getting your credit report from the credit bureaus. Each of these credit report requests raised by card issuers qualifies as a firm investigation, which gets listed on your credit report and harms your credit score. So imagine the damage your credit score would suffer if several of these claims, especially in a short period of time, were submitted to credit card issuers. Therefore, instead of doing this, try spreading your apps out over a period of time, rather than bombarding them with multiple apps. It is best to do your research on the features, fees, and your eligibility of the card, then finalize the lender to submit the application.
7. Take everything on the EMI “free of charge”
Are you one of those credit card consumers who keep ticking everything off their bucket list buying it with no EMI fees? If so, then stop by and read this. and listen to us. The entire aura that has been created around the free NDEs hides the most important truth about these patterns. Simply put, no-charge IMEs are just a marketing gimmick to attract customers, and the interest charges are actually built in and hidden from consumers. Check it out to understand this more deeply.
Also, when you are having difficulty paying your credit card bill, especially when you are having financial hardship when considering paying the minimum amount due, remember that the EMI amount is excluded from the minimum amount due of 5. % which is otherwise calculated on your outstanding balance, including various transactions. So having EMIs actually adds to your minimum contributions. Read this to understand better.
Also, keep in mind that the cost of GST incurred on the interest component of “free” IMEs must be borne by the customer, as it is added to the credit card bill itself, and some card issuers charge also a processing fee for this EMI facility.
8. Do not plan transactions according to the interest-free period
Few credit card users are aware or able to maximize this key benefit of credit cards. The interest-free period refers to the length of time between the date of a credit card transaction and the due date for its reimbursement according to the invoice. During this period, no interest is charged on credit card transactions, provided that the entire balance due is repaid on the due date. Usually between 18 and 55 days depending on the date of the credit card transaction and the credit card issuer, this feature can be extremely beneficial if used well. The earlier you complete the transaction during the billing cycle, the more time you have in the form of an interest-free period to easily pay it off on the due date. Whereas the longer you delay, that is, the later you complete the transaction, especially large bills, the less time you have to repay it on the due date.
9. Ignore “pre-approved” credit card loan when funds are needed
Much like personal loans, credit card loans are a form of unsecured loan available to credit card users without any restrictions on end use. However, the only thing to keep in mind is that credit card loans are inherently pre-approved, which means that credit card issuers only offer these loans to certain cardholders with outstanding credit cards. good repayment history and a good credit profile. But for existing credit card users who need urgent funds and are eligible for this pre-approved loan, taking advantage of it can be a savior during a financial crisis, especially when it becomes difficult to take out any other form of loan. .
10. Allow your reward points to expire
One of the main benefits that credit card issuers claim when pushing their card to target audience is reward points. As you continue to use your credit card for various transactions, you continue to accumulate reward points on qualifying spending. And later, you can redeem these reward points for many benefits such as converting to airline miles, gift vouchers, redeeming at certain merchants and / or online partners. Sometimes the reward points can even be adjusted based on unpaid bills, depending on the credit card and issuer’s reward point program. However, redeeming these accumulated reward points is only possible if done before expiration, with a few exceptions almost all credit cards have a proposed expiration for redeeming reward points, which is usually after a period of 2-3 years. Therefore, avoid losing these points and the redemption benefits by keeping track of the validity of your card’s reward points.