Credit cards are terrific financial assets that everyone should consider acquiring. Adhil Shetty of BankBazaar.com explains that owning a credit card and using it responsibly lets users build a solid credit history, which can help them access better credit loans in the future. Credit cards can also earn users different privileges, such as discounts, cashback offers, and deals. Using a credit card can protect your cash from fraud and theft.
At the same time, however, using a credit card incorrectly can cause damage financial wellbeing. For this reason, we’ve devoted this post to identifying some common credit card mistakes you should never make.
1. Not viewing your credit statement
Studies from research firm Nilson Report estimated that credit card fraud will account for losses worth 408.50 billion USD worldwide. If you don’t want to be a part of similar statistics in the future, you should always check the transactions listed on your credit card bill. Regularly viewing your credit statement also allows you to report any system errors and take action against incorrect charges. Reviewing your monthly statement is a good starting point, but if you use your credit card frequently and want to practice extra vigilance, it’s best to check a few times each week.
2. Not being aware of your fees To responsibly use your credit card, you should be aware of all the applicable fees. Credit cards are known to come with numerous fees, and not staying on top of them can ultimately result in an unwanted dent in your wallet. To give an example, one such fee that you have to be mindful of is the cash advance fee. While it may seem like an easy way to obtain cash, your issuer may charge you 3-5% per cash advance — and this can easily add up if you withdraw large sums of money, or withdraw sums frequently. If you don’t want to be on the hook for such unnecessary expenses, remember to remain mindful of the fees associated with your card usage.
3. Only paying the minimum balance Just because you’re allowed to stick to minimum payments doesn’t mean that’s all you should do. While paying only the minimum balance allows you to avoid late fees, it can also result in unnecessary interest charges. Additionally, not paying your bill in full may cause you to fall into debt, and sometimes quite quickly. So as much as you can, try to avoid beyond your means, and make sure that you pay off your full bill whenever you’re able to.
4. Maxing out your credit card It’s never a smart idea to max out your available credit. If you get close to reaching or exceeding your credit limit, your issuer might charge you associated fees. Furthermore, your credit score is also likely to take a hit due to high utilization rate. AskMoney.com’s primer on credit scores conveys why this can be a problem, noting that a higher credit score makes it easier to access other financial perks such as loans, mortgages, rent agreements, and insurance. For this simple reason it’s best to avoid creeping up on that limit. And if you do often get close to your credit limit, but don’t have a problem paying your bill, be sure to call your issuer and request a credit increase.
5. Using your credit card to pay off exorbitant bills Medical and renovation bills can cost you thousands of dollars. While it may seem like a good idea to pay these off using your credit card, doing so can incur significant fees in the end. This is why for the sake of your own financial wellbeing, it can sometimes be best to consider a personal loan instead to manage such expenses. A Time Magazine article on personal loans as they relate to credit cards explains that personal loans have lower interest rates and can be paid in regular installments, which often makes paying them off easier if you’re trying to stick to a budget. That doesn’t mean it’s always the right option, but it’s one worth considering when large bills come up. Putting major expenses on a credit card often ends poorly.
Once again, credit cards are great tools that can help you find financial stability, so long as you remain careful and strategic with how you handle them. For additional tips on handling credit card mistakes, you can check out our article ‘Top 5 Tips to Increase and Rebuild Your Credit Score’. With this article, you can learn how to manage credit cards responsibly and build good credit.