A credit card is a useful financial instrument as long as it is used wisely. A missed or late payment can take a toll on your credit score and add up credit card charges. Your credit score is an indicator of your creditworthiness. It impacts your credit eligibility and the ability to pay off debts in the future. Hence, it becomes extremely important to use your credit card efficiently and carefully.
A credit card discipline can help in avoiding credit mistakes. Here is a list of common credit card mistakes and ways to avoid them:
Common credit card mistakes and ways to avoid them
- Cash withdrawal
Whatever circumstance it is, for cash requirements, you should try avoiding withdrawal using a credit card. A high outstanding amount plus cash withdrawal can reduce your credit score.
- Missing bill payments
It is recommended to set alerts or reminders to never miss or delay a bill payment. Some credit card companies provide a grace period of 30-90 days for clearing dues. A delayed or missed payment can lower your credit score and reflect on the credit report. It can also accumulate credit card charges and it’s best to avoid that, by making regular and prompt bill payments.
- Getting lured by low-interest rates
You may be lured to take a chance for a hard inquiry on opening an account with a low-interest rate. More accounts opened can lead to a dip in the credit score.
- Application for multiple credit cards
If you apply for multiple credit cards in a short period, you may be inviting credit trouble. Research online and choose wisely where to apply for a credit card. Keep in mind that every credit card action impacts your overall credit score.
- Inactivity in credit card
Inactivity in the use of credit cards can invite credit card charges. It can reduce your credit card age. Always remember to keep your credit card active. Make small payments now and then and remember to pay bills on time.
- Spending for reward points
If a credit card payment offers a reward, you may tend to frequently make payments to avail those rewards. Try to be vigilant of your reward-based spending frequency since every rupee spent using credit card counts.
- Payment of tax bills
You may choose to pay tax bills using a credit card. It is advised to avoid that practice. It attracts credit card charges like interchange fees and hence can be avoided.
- Sharing Credit information
Never share your credit card information at any cost with anyone via word of mouth, phone, or mail. Keep your credit profile and information confidential to prevent misuse.
- Application for gas or fuel card
A gas or fuel card (MasterCard or VISA) comes with a higher interest rate. It is recommended to think twice before you apply for gas or fuel cards to avoid incurring hefty charges.
- Payment to minimum
If you can’t make the payment for the entire bill amount, it is better to make payments more than the minimum. If you can pay the entire amount, that’s well and good. Paying more than the minimum can save money and clear off dues faster.
- Disregard to the fine print of credit card
Ignoring and neglecting fine and small prints of your credit card is common. It may contain information about lower interest rates expiry and transfer dues balance. Hence, remember to pay attention to the fine print.
- Credit non-monitoring
If you fail to monitor your credit spending, you may never notice an error. Keeping a close watch regularly on the credit report and credit-related mails is recommended. This can help in checking for frauds, errors, or thefts.
- Application of multiple loans
It is better to avoid frequent inquiries for multiple loans, just to obtain the best interest rate. Thorough and complete research before applying for a loan is always advisable.
- Reliance on Credit repair schemes and services
You may come across a credit repair scheme or service to remove negative remarks from credit reports. Your credit report and score are rather impacted by your credit discipline. Relying on such services can attract high charges with a temporary effect.
- Utilization of high credit
Using high credit lowers your credit score. It’s best to maintain a low credit utilization practice, to not exceed the limit.
What’s the recommended credit card practice?
It is important to understand where you could go wrong and avoid repeating mistakes with a credit card. To maintain a good credit score and a credit history, make smaller payments with a credit card. On availability of funds, regularly clear off dues. Always be vigilant of credit-related transactions and alerts.