Things You Should Not Do with a Credit Card

Posted in Cards Article By Chanel Rick - Apr 13,2022
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Acquiring your first credit card is a crucial part of your fiscal journey. Consider it as a rite of passage, or perhaps, even a fad. Today, people eagerly whip out their credit cards at retail outlets and restaurants to reap the many benefits of using plastic money. They enjoy endless exciting rewards like discounts on dining out or cashback vouchers for shopping sprees. 

Regardless of how thrilling this may be, bear caution and don’t fall prey to possible financial blunders. New Credit Card users are often blind to glaring problems like over-utilised credit or unnecessarily opting for card payments over cash. Your oversights could tarnish your credit score, possibly dragging you into a vicious debt cycle. 

Also Read: Invitation-Only Credit Cards in India and What They Offer

Know Your Credit Utilisation Ratio 

Though confusing at first, you don’t need to use up all the credit available on your Credit Card. When asked, most people are unaware of how much credit they should use on their card. Unfortunately, their uninformed decisions lead them to creep beyond the acceptable range of credit usage. 

No matter the credit available on your card, exercise restraint on how much you avail. Follow this ratio to prevent the detrimental consequences of over-utilisation. 

  1. 0%: Under-utilised cards with zero usage risk closure due to inactivity. However, this is still preferred over double-digit ratios
  2. 1% to 9%: Considered the ideal range of usage; this will aid in improving your credit score
  3. 10% to 29%: While still low, experts suggest lessening your credit dependency to under 30% for every credit card owned 
  4. 30% to 40%: Holding multiple credit cards with over 30% usage negatively influences your credit score
  5. 50% to 89%: This is a glaring indicator of financial instability and incidentally reduces your chances for approval of additional credit in the future 
  6. 90% to 99%: Your credit score will tank lower with every nearly maxed credit card you own
  7. 100% and Above: With the brand of being an irresponsible borrower, you will be charged over-limit fees and suffer severe credit score damage 

Credit Card Missteps Everyone Should Avoid 

1. Transferring Your Balance 

Credit card companies often lure credit-hungry users by offering them enticing cash rewards. Falling for these tactics could incur additional debt, and you may void any promotional offers by purchasing items or services through your balance transfer card. 

2. Lending Out Your Credit Card 

Allowing someone else to access your credit card, exposes you to unforeseeable risks. Consider the risk of having zero control over their purchases. Furthermore, their failure to pay back makes you liable to make the payments yourself. 

3. Delaying to Report Lost/Stolen Credit Cards 

By postponing reports of stolen credit cards, your inaction favours the thief. In turn, you provide them with a longer head start to misuse your card. Inform the credit card company and local police of such crime immediately to avoid liabilities for fraudulent transactions. 

4. Only Paying the Minimum Due 

Only paying the minimum amount due prolongs the duration of debt repayment. Extending the debt tenure increases the period of interest payment. Unless your financial circumstances advise otherwise, pay off all debts at the earliest. 

5. Using Credit Cards for Cash Withdrawals 

The feature of cash withdrawals through credit cards comes at the price of high fees. Such cash advances could incur interest of 2.5% on the amount withdrawn. The interest will be charged starting from the first day of the withdrawal, with usually no grace period. 

6. Paying for Idle Privileges & Rewards 

Most credit cards offer you a host of handsome rewards for various activities like travel, dining out, booking theatre tickets, etc. However, paying the annual fee for a credit card with unappealing offers is futile. Choose one that offers perks that you would most likely avail. 

Nonetheless, a credit card could bail you out of a pickle – as long as you use it cautiously, without going overboard! 

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