Credit cards are a great way to pay for expenses and to build your credit score. However, they can cost you a lot of money as well as damage your credit score if they are used incorrectly. Here are 5 common credit card mistakes that people make and how to avoid them:
Only Making Minimum Payments
Not paying your bill in full and making only minimum payments is one of the most common mistakes that people make. This is the pathway to rack up unnecessary interest charges. Plus, it can add months, even years to the time that you might take to pay off your debts. It is important to have a consistent and on-time payment plan in place to pay your bills in full.
Neglecting the impact on your credit score
Credit card debts have a huge impact on your credit score and hence impact the amount of interest that you will be paying, the amount of credit that you get and if you will be able to get any credit in the future or not. Factors like your credit mix, payment history and the amount of debt that you carry are some of the factors that determine your credit score. To have a positive impact, balance out your spending every month.
Not knowing the applicable fees
Many users, especially first time users do not consider it to be important to parse through the jargon of the cardmember agreement. The fees differ from bank to bank and from card to card. Many users, particularly first time users, end up paying more in terms of joining fees, annual fees, late payments and so on. It is important to go through the application form and the terms and conditions related to cards.
Closing a credit card
Many users pay off their credit card debt and close their credit cards. This can do more harm than good. The average length of time you’ve had credit is one of the factors that determine your credit score. When you close a card, the length of your credit history is affected and that ultimately affects your credit score. Do not close your credit cards, especially if the benefits of having a credit card outweigh the annual fees that you are charged on that card.
Overspending and missing payments
Many people fall into the trap of overspending when they have credit cards since they can buy things immediately and pay later. Sometimes they miss payments because they forget, especially when they have multiple credit cards. At other times, the debt mounts and it becomes very difficult to make timely payments. This is another factor that impacts one’s credit score. Set up auto payments to avoid overspending and to make payments on time.
