Credit Card Mistakes You Don’t Know You’re Making
Having a credit card means that you now have access to more convenient transactions without having to have cash on hand all the time. A credit card, however, means that you need to adopt the correct financial attitude and the right habits so you do not end up getting buried in debt and annual fees. Here are some mistakes that you might have been making that you are not aware of yet:
Paying Your Bills Late
When you just had your credit card, you might not be thinking about your dues seriously. The thing is, these matter and late payments can greatly affect your credit score. When you keep on paying late, the interest and fees can all add up and this can lead to paying more in the end.
“What can do you the most harm is paying late or not paying at all,” says financial expert Barry Paperno. The effects of paying late can hit you right away and it could take a long time before you can recover. If it takes you really long to settle your dues, you can get hit with a charge-off and this can stay on the record for seven long years.
Applying for a Card and Not Using It
Just as most other companies, the end point of your credit card from the bank’s viewpoint is for them to make a profit. However, if you do not use your credit card, they apparently earn nothing from you. If you have not used your credit card for quite some time already, your bank can classify your card as inactive and close your account.
If you do not use your card that often, you can try placing a small recurring fee and paying it off each time. You should also use it for some transactions you usually get into, such as groceries.
Closing Your Card for the Wrong Reasons
Sometimes, you might find out that you do not really need your credit card that much. If this is the case, closing your card is not the exact solution. When you close your cards, this has a direct impact on your credit history and most of the time, it is not positive.
When you decrease the amount of credit available t you, you actually end up increasing your credit utilization ratio and this can hurt your credit. If you feel like closing your credit card, do consider just using it once in a while just so that you can keep the account alive. There could also be times when closing the card could mean more sense, such as when you want to avoid annual fees. If this causes a more favorable budget, think about it carefully.
Using All the Credit You Are Given
Just because you are given a reasonable amount of credit while you can pay all of that on time does not mean you should spend all of it. When you swipe your card excessively, not only are you more likely to hurt your budget, it could also hurt your credit score.
You issuer takes your utilization rate into consideration and they would like to see that such does not get too high. A rule of thumb is to aim for a utilization rate under 30 percent, but this does not really mean that you need to get a balance on your cards.
Spending Just to Earn Rewards
Credit card rewards look tempting and you might be pushed to spend more to earn them, but this is the wrong way to use your credit card. You might end up buying a lot of things that you do not really need and will push your budget to the wall.
When shopping, be mindful of the reason as to why you are buying each and every item. When you are about to fall in line for the cashier, take a second look at the things that you are about to buy and ask yourself once again if you really need them. If the answer is no, then consider delaying your purchase.
While you now have better access to a lot of purchases, you also have to be more responsible financially. Do you know any other common credit card mistakes for newbies? Share them with us in the comments below
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