Using credit cards can be simple for some but first time holders might be confused on how to utilize them for their advantage. There are still some who find it hard to control their finances and are always indebted for some period of time. To guide the users, here is a list of the 10 common credit card pitfalls being encountered by many users:
- Paying late. This can be the biggest mistake one can make and can badly hurt the card holder’s credit standing. As a consequence the interest rates may soar resulting to a low or bad credit score.
- Paying at a Minimum. It is a rule of the thumb to pay more than the card’s monthly minimum but most users cannot discipline themselves to do so. The result is an existing loan which remains to be paid plus the interest it carries.
- Utilizing the entire credit limit. Having a credit card is not an assurance that financial spending can be controlled; rather, it can be a motivation to shop more. Financial advisors suggest that card holders must consume just 30% of their credit card limit. Regular checking of the credit utilization ratio is a good practice to avoid maxing out the credit limit.
- Ignoring monthly notices and statements from card issuer. Monthly billing may seem to be a junk mail but it contains important details that may affect fees for the month. The card user must carefully read the billing statement since it may contain viable information such as change of due date, fees, balance transfers and cash advances. It may also present unfamiliar or erroneous charges that can be corrected immediately.
- Not monitoring the credit card spending. A borrower might feel that keeping track of one’s spending is not important since a billing statement is delivered regularly. However, over swiping of plastics will result to card balances that one can’t pay off in the end.
- Charging for rewards. Credit card rewards such as discounts and airline tickets are very enticing but these come with a term that one must purchase an item or acquire some services before qualifying for a reward. These rewards are not entirely free; it even results to overspending and going beyond what you can afford.
- Transferring balance. Transferring debts to a low rate card from a high-interest one may seem to be beneficial…but it isn’t. There are fees connected to the transfer and a borrower may end up paying with more debts if he ignores the balance transfer rules.
- Excessive cash advance. Cash advances generally produces high interest rates and must be paid fully on due date before accruing more interest. Since this is the case, the general rule is to avail of cash advances only for emergency purposes.
- Having too many credit cards. Applying for numerous credit cards will be consequential because this will result to overspending. The credit score of the borrower will be affected since this may be a factor for the credit companies’ suspicions over the financial standing and capacity of an individual to manage debts.
- Canceling the account. Closing one’s account may seem to be favorable but it actually creates a negative impact to the user’s credit score points. In doing so, the credit line will be reduced and this will leave a bad image to the card issuer. Rather than closing the account, it will be good to keep it open and use it only for highly significant purchases.
Having a full knowledge of the credit card company’s rules, policies, and the whole process is the main factor to avoid the above mistakes. Generally, these plastics are very beneficial; proper control must only be learned to avoid any troubles on financial resources and to maintain a good credit score.