Credit cards have emerged as a handy and useful financial tool that allows you to carry out a wide variety of transactions like buying groceries, booking air tickets, or paying bills. Also, the availability of credit cards with no annual fee has reduced the cost of using credit cards making them even more economical.
Regular and disciplined use of credit cards also allows you to build your credit score, an important factor considered by banks while sanctioning personal loans or any other form of borrowing. In your quest to avoid cash transactions totally or take benefit of the available credit you may, however, be using your credit card in the wrong way. Let us find out about such situations or ways.
- Using Too Many Credit Cards – Excess of anything is bad. So, while credit cards are quite useful in managing your expenses and finances, having too many of them can be a problem. Having several cards can make it difficult for you to keep track of the various expenses and often leads to excess spending and in many cases missed payments.
So, it is wise to keep a few credit cards that you can easily manage and keep track of. Forgetting to pay the due amount of even a single card can hurt your credit score. So do not get lured by the offers of free credit cards.
- Paying Only the Minimum Balance – If you are paying only the minimum due balance on your card every month you are creating outstanding balances that attract interest charges. This not only adds to your cost of using the card but also affects your credit score. However, if you are paying off your due amounts in full every month, your credit utilization rate improves and so does the credit score.
- Using Your Credit Limit to Full – If you are using the credit card to spend a lot, maybe up to the full limit available – it can harm your credit score. Ensure that your credit utilization ratio is below 30% or you are using a 30% or lower amount of the credit available to you.
- Not Redeeming Your Reward Points – Not redeeming your credit card reward points means you are missing out on the benefits like discounts or special offers or cashback. You should keep track of the reward points earned by you and their expiry. You can even choose to apply for a lifetime free credit card having no expiry on its reward points.
- Closing Old Credit Card Accounts – Another mistake you may be making is to close your old credit cards especially when they do not involve an annual fee. Again, do not close accounts whose credit card charges are minimal. While your motive may be to simply get rid of clutter, but you need to know that credit history is good for your score. The length of credit history is an important factor in determining your credit score.
Avoid these mistakes and reap the full benefits of using credit cards.