Credit cards allow consumers to make purchases now with the simple promise that users make their repayments or settlements on a later date. Unfortunately, access to credit today has allowed many users to fall into credit card debt and other financial difficulties. Here are six typical credit card errors and dangers to avoid so that this does not happen to you:
Making minimum payments without restraining expenses and purchases
Credit cards offer a minimum payment option for each monthly statement. This feature seems helpful, indeed. However, paying only the minimum amount will cost you money if you do the math again. Making the minimum payment means you end up paying more interest and digging yourself further into debt.
The unpaid amount will snowball gradually without you even noticing. Try to make a payment plan before incurring more significant expenses. Always make timely payments that are consistent with the balance. Or consider a debt consolidation plan.
Carrying a balance on your credit card
One of the biggest credit card mistakes is carrying a balance on a credit card. High credit balances will result in a bad credit score (CTOS or CCRIS score).
This is because your credit utilization rate is higher when you have a balance. Credit utilization is the amount of debt you have compared to available credit. A FICO study found that the lower your credit utilization, the better—since your utilization affects your credit score just as much as failing to make regular payments.
Carrying a balance can also incur enormous costs due to interest. If you still have to pay interest on the loan, conveniences like cashback will be useless.
Missing a payment
Another credit card mistake is late or missed payments. Delinquent payments can also damage your credit score, especially if you have more than 30 days past due. According to this fico report, a delay of more than 30 days may cause a 17 to 83 points decline. A 90-day delay would result in a drop of 27 to 133 points.
You won’t experience a decrease in your credit score if your payment is overdue by less than 30 days. This is because payments must be past due a full 30 days before being reported to the bureau (Credit Bureau Malaysia, CCRIS, CTOS, or Experian). However, you may incur a fine or interest rate penalty.
To prevent this from happening, you can enable automatic payments. That way, credit payments are always made on time.
Neglecting to review billing statements and recurring expenses charged to your card
Verify the accuracy of every transaction reported on your bill. If there is fraud or misreporting, you can take action immediately. At the very least, you should review the monthly report to ensure that no errors have been made on your credit card bill. Be mindful of recurring payments and standing instructions so that you are prepared for them.
This practice helps you also monitor possibly fraudulent charges that might occur. .
Applying for new credit cards often, or having multiple credit cards.
When you apply for credit, a new inquiry will appear on your credit report—the more inquiry that arises in a short period, the greater your risk. You will be perceived as a risky borrower desperate for credit from the banks. Additionally, your CTO score and CCRIS will both reflect this. Try to only apply for credit as needed, ideally, no more than once every six months.
Additionally, it’s best to avoid having multiple credit cards, multiple cards allows for an increased risk of debt. More debt equals negative credit scores.
Credit cards are meant to offer us an immediate line of credit in the event of emergencies, Aside from that, credit card companies offer perks, points and great discounts when used responsibly. The trick is to spend within your means, and remember to pay your bills in full to enjoy the actual benefits of having a credit card in your wallet.