Credit card are a great financial tool, but only if you use it carefully and not recklessly. There are people who have had credit cards for years and never had any problems with debt. And then there are people who are always in trouble due to credit cards.
You do not want a debt in future, and you definitely never want a credit card debt. Debt can cripple your finances. You should never have a debt more than you can handle and pay back. If you let it accumulate, not only does it become a problem for you but for your whole family.
Seven Sins That Could Threaten Your Credit Score
It is very easy and not at all complicated to manage your credit card debt, but it requires a little bit of discipline and self control. If you do not have these 2 virtues, then you may be in line to ruin your financial wealth.
Just as the 7 deadly sins, the 7 most common sins or mistakes that credit card holders make are the following.
1. Being Late
People often make late payments on their credit card. This is the easiest sin to commit, and is the most common sin committed too. You need to be sure that the purchases you make can be repaid by you in a timely manner by the due date itself. If you fail to pay the amount by the due date itself, you will be made to pay the late penalty charges also. Not only this, the amount will be carried forward to your next billing cycle and the high interest on the credit cards will increase your debt.
If you may not be able to make the payment in due time, you can call your credit card company and ask for temporary extension stating your valid reason of making a late payment. However, it should not be made a habit. Delayed payments have a negative impact on your credit report thereby making it difficult for you to get credit in the future. Also, you will be charged higher interest rate on loans and credit cards if you have a low credit score.
2. Paying Minimum Balance
Paying only the minimum balance is a common mistake that people make. What they don’t know is that it can be a burden to them in the future. Paying the minimum balance may only help you to manage your immediate financial issue, but it adds to your future debt. The amount not paid will increase in your next billing cycle due to higher interest rates, and may keep on increasing if you fail to clear the dues at once. It may even result in your poor credit score.
3. Maxing Out Your Credit Card Limit
A mistake people often make is that they max out the limit of their credit card. This makes it difficult for people to pay the balance immediately. If you use more credit than what is allocated to you, it may hamper your credit score too. It is recommended to keep the credit utilization ratio to a low to have a good credit score, as it accounts for 30% of your credit score. It is important to not use all your credit not only to have a good credit score but to make sure that you are able to pay off the debt immediately.
4. Not Monitoring Your Credit Report
Not many people understand how this can be considered as a sin in the financial sector. They do not pay attention to their credit report as they feel that it is unnecessary. Nowadays, people often are a target of credit card frauds. An easy way of recognizing frauds is to monitor them.
You can check if there have been new account openings under your name or purchases in your report which were not made by you. Therefore, it is recommended to keep a regular check on your credit card reports.
5. Applying For New Cards
Many people apply for new cards to get rewards. While the rewards may be important, but your need of getting a new credit card should be borne out of necessity. You should apply for a new card only if you intend to use it.
It is also common to see people apply for loans in a short span of time to meet the demand of funds for immediate needs. This shall be perceived as bad for your credit health. It leads to a negative effect on your credit score. When you apply for loans, your lender makes a hard enquiry and this can affect your credit score negatively. Multiple hard enquiries will reduce your credit score considerably.
6. Using Card To Access Cash Advances
A sin which you should definitely avoid is using your credit card to make cash advances. This shall never be done in any circumstance. As already, the interest rate on the credit cards is high, and the cash advance rates are even higher than them. It is never a solution to use your credit card to access cash advance even if you are in a tight financial situation.
7. Ignoring The Fine Print
You should never ignore the fine print related to any document, credit cards being the first ones. They may be tough for many people to comprehend, but it should not be an excuse to ignore it. You can ask the customer service if you get stuck at points. Always read the fine print before applying for a new credit card. It is always better to know of the terms and conditions rather than be charged for violating the rules.
The Bottom Line
The bottom line is that one should understand every aspect of the credit card and always read the terms and conditions associated with it before applying for one. This will ensure that you do not commit any sin related to credit cards in the future. This will always help you in being free of debt in the future and help you to maintain a good credit score.