Do you know Credit Cards have become more popular in the last few years. According to a survey, number of active users has almost doubled in five years from 5.5 crore users in December 2019 to 10.8 crores in December 2024. However, the question rises, are they using the credit cards the right way? Not really. The new users tend to make mistakes that cost their credit. In this article, you will learn the most common credit card mistakes to avoid that hurts your credit score.
Credit Card Mistakes to Avoid
1. Applying and/or using multiple credit cards at once: Your credit score may suffer if you apply for multiple credit cards in the first six months.
2. Carrying a balance month-to-month: You lose money and damage your credit score when you carry a balance each month. This indicates that your credit utilization ratio, which is calculated by dividing your total amount of outstanding credit by your available credit, is higher.
3. Missing payment dues: Missed or late payments can seriously lower your credit score. A 30 days delay in the repayments can affect up to 90 points (approximately) while 90-days delay can damage it up to 130 points (approximately).
4. Making only minimum payment: Despite the fact that you must make at least the minimal payment, it is often not a good idea to do so. It may take months or even years to repay your credit card debts.
5. Maxing out the credit card limit: Utilising your credit card to its full limit will only end up increasing your credit utilization ratio. In addition to causing higher charges that nearly reach your card limit, a high utilization ratio can seriously harm your credit score.
Also read: These Tips Can Cut Your Credit Card Bill Drastically!
6. Ignoring the terms and conditions: Most people skip checking the terms and conditions attached to credit cards. However, ignoring the card’s fees, interest rates, billing cycle, and grace period can lead to unexpected charges. To make an informed choice, it is advisable to review the terms and conditions.
7. Not checking the statements regularly: It is a least required responsibility that you should review your credit card statements at regular intervals. In case of any fraudulent activities or any suspiciousness, prompt actions can be taken against it.
8. Closing off the old credit cards too soon
- The duration of your credit card is one of the elements that affects your credit score. Your credit score may suffer if you pay off your credit card too soon.
- For instance, you have had credit for an average of 3.5 years if you had a 5-year-old card and a 2-year-old card. Your age of credit drops to two years if you cancel the five-year-old card.
- It’s not advisable to close off your credit card too soon. Instead, you should use your credit card for minimal expenses.
9. Failing to set your spending limit
- Though you are provided with a limit, it is not advisable to spend the card to its fullest limit and can exhaust your credit utilization ratio. Hence, keep yourself an illusionary limit within which your spending brackets should fall within.
- This way, you know your repayment amount and the accompanying charges.
10. Spending more than your repayment capacity
- Spending more than your repayment capacity will do you nothing but end up in increased interests and damaged credit score.
Conclusion
When you obtain your first credit card, it might be a financial accomplishment. It offers you various awards, rewards, perks and benefits. However, if misused, can lead to unexpected financial losses and debt traps. Consider credit cards as a responsibility and make informed decisions to prevent yourself. Financial independence can be attained through prudent credit card use. Start right, stay aware and let your financial habits work in your favor.
Written by Kavitha Sugumar
