Getting Your First Credit Card? Avoid These Eight Common Mistakes
Mistakes that credit card users should steer clear of include maxing out their credit limits and making cash withdrawals
Credit cards have become an essential financial tool in today's world. Credit card usage has surged over the past few years driven by discounts, offers and convenience. However, if not used responsibly, a credit card could end up becoming a financial burden rather than a benefit.
When using your first or newly acquired credit card, steer clear of common mistakes such as overspending, paying only the minimum amount and missing payment due dates. These mistakes could result in high interest rates, lower your credit score and hamper access to credit instruments in future.
Eight Credit Card Mistakes First-Time Users Should Avoid:
1. Paying Only Minimum Due
The temptation to pay only the minimum amount due each month can be strong, but it’s a costly trap. Credit card interest rates can be as high as 36-48% per annum. When you pay only the minimum due, interest accrues on the outstanding amount. To avoid this interest and establish a robust credit history, it is advisable to clear the entire amount due every month.
2. Missing Due Dates
A single missing payment could result in fines and a long-lasting adverse impact on your credit score. It is important to make timely credit card bill payments. Missing the deadline not only results in a late fee, but also damages your credit score.
3. Spending Beyond Credit Limits
Exceeding your credit limit or maintaining a high credit utilisation ratio can negatively impact your credit score and, in some cases, result in over-limit fees. Irresponsible credit card swipes are common, but debt tends to accumulate when not paid attention to. Hence, you should avoid maxing out your credit card utilisation ratio.
4. Cash Withdrawal
Using your credit card to withdraw cash is never a smart financial move as it comes with steep costs. Unlike purchases, there is no free period for cash withdrawals using a credit card. Interest charges are calculated from the day you withdraw the money. Therefore, unless there is an emergency, it is advisable to completely avoid withdrawing cash using credit cards.
5. Multiple Credit Cards
It is recommended to have a limited number of credit cards, even if you intend to maintain your credit utilisation ratio below 30%. Every time you apply for a new credit card, particularly within a short time frame, the bank lowers your credit score by a hard query on your credit report.
6. Ignoring The Fine Print
Reading the fine print is not an enjoyable exercise, but it is an essential one. Going through the terms and conditions can help you get a clear idea of hidden fees and charges.
7. Choosing Wrong Card
Making the correct credit card choice is important. Each issuer provides a range of credit cards with various applications. It is essential to select a credit card after thoroughly researching the different types of credit cards and their benefits.
8. Ignoring Benefits And Reward Points
Reward points, cashback incentives and other perks frequently come with credit cards. You might lose out on significant savings if you ignore these. It’s advisable to make the most of credit card rewards and discounts.
By avoiding common beginner mistakes and using your credit card responsibly, you can build a strong credit profile and use it as a powerful financial tool.
