10 CREDIT CARD MISTAKES USERS MAKE
A credit card is a great asset, but that little plastic card can cause a lot of damage if you are not careful about its usage. Especially, if you are a first-time credit card user, there are higher chances of you committing mistakes that might put a dent in your credit score. Here we are mentioning the most common credit card mistakes that users make to help you avoid committing them and make the most of your credit cards.
- Carrying a balance month to month – Carrying a balance month after month is the first thing you should avoid. Once you spend using your credit card, you get 30/45 days (or as per the bank terms) to re-pay it without incurring any interest on that amount. In case you exceed the scheduled date of payment, it not only affects your credit score but you also incur charges such as interest on the due amount and late payment fee.
- Paying only monthly minimum due – One of the major credit card mistakes people do by paying only the minimum payment due. very A false notion prevails around this amount given in the statement. Some people believe that the minimum amount is like an installment being paid for the due amount. Some believe if they keep paying the minimum due, there will be no interest or late charges levied and that the credit score will remain unharmed. This is NOT true in any way. The credit card issuing institutions understand that there may be unfavorable situations leading to non-payment of complete dues within the given interest-free repayment time period. So, to help customers this concept of minimum due was introduced to make it easier to repay the balance. The charges will still be levied by the issuing authority and have to be paid to the customer for delaying the payment.
- Missing Payments – Late or missed payments can seriously hurt your credit score if you’re 30 days past due. Usually, this happens when you are either overwhelmed with debt or forget to make the payment. A single missed payment can drop your AECB score up to 100 points or even more if it has been more than once.
- Ignoring Billing Statement – In the rush of daily routine, sometimes we ignore certain important things which later we regret for. It is extremely important to check the monthly billing statement for your credit card to ensure you are well aware of the exact due date and amount to avoid any delay or discrepancy in the payment. The slightest of error may cause serious damage. You may also miss out on certain important announcements about any changes to your credit card terms. You may get notice of if any fraudulent activity happens using your account or any incorrect charges have been levied. Be proactive and save yourself from hassles by checking your billing statement once you receive it.
- Not Knowing the Interest, Fee, and Other Charges – Lack of knowledge about the product that you use harms you in two ways, first, you aren’t able to put the product to its best use and get the maximum benefit; second, you do not use it the right way and commit mistakes in using and handling leading to damage. A credit card is no different than a product issued to you by the bank. It is imperative to be aware of all charges, fees, and interest rates associated with your card. If not, you may end up making uninformed decisions and payment plans that will ultimately hit your score.
- Cash Advances – Perhaps, one of the riskiest things to do with your credit card is to take out a cash advance. It immediately calls upon accruing interest on the amount of cash withdrawal with no grace period whatsoever. Also, there will be a separate cash advance fee that has to be paid apart from the accrued interest which could be around 5-10% of the amount of withdrawal. Repayment of cash advances can get really difficult if you aren’t prepared well for managing the hefty charges along with the principal amount.
- Maxing Out Your Credit Card – Using all or maximum of your available credit limit, not a good practice. The term ‘utilization rate’ is often used during the assessment of the financial creditability of an applicant. It refers to the rate at which the user utilizes the credit limit allocated to him/her. The lower is the utilization, the better is the credibility. A higher utilization rate can lower your credit score or AECB Score. In case you feel that your requirements have increased and you can also pay it back easily, you can ask for a credit limit increase from your bank.
- Frequently Applying For Credit Cards – Another credit card mistake people usually do due to lack of knowledge is applying for multiple credit card applications at the same time. Very few people in UAE are aware of the fact that every frequent credit card application results drop in your credit scores by 10 points. Try to keep a gap of a month or two for every credit card application. The more inquiries in a short period of time, the greater risk you appear to lenders. Applying for credit cards too often affects the credit score negatively.
- Closing Your Credit Card – Closing a credit card has its impact on the length of credit history. Your credit history is assessed every time you apply for a new credit card. Therefore, it is not advised to close your credit cards especially the oldest ones.
- Getting Credit Card Charged-off – When the account becomes delinquent to an extent that the lender sells the debt to a collecting agency after writing off the balance as loss in his account, it is termed as account delinquency. Usually, it takes six months of missed payments to get the card charged-off. This is one of the crucial credit card mistakes that affects your credit report for seven years and also the ability to procure cards and loans even in the future.