5 Signs That You May Be Using Your Credit Card Incorrectly
In the era of digitalisation and online shopping, credit cards have become an essential part of our financial lives. However, if not used correctly, credit cards can lead to a financial mess that can take years to clean up. By understanding these signs and avoiding them, you can use your credit cards responsibly and benefit from money-saving deals.
Read about the 5 signs that display incorrect credit card use and what you can do to boost your financial health.
Maxing out your credit card
When you max out your credit card, you have used all of your available credit limit. This has two repercussions:
- You cannot make any more purchases until the next cycle after you pay your bill
- Your credit utilisation ratio is too high
In the first instance, not being able to use your credit card until the next cycle means that you do not have the freedom to use your card in an emergency. In the second instance, having a high credit utilisation ratio can hurt your credit score. Both these issues are not ideal. So, it is best to keep a close eye on your credit card balance and spend based on a budget. This way you can ensure you do not max out your credit card.
Paying only the minimum due
When you make only the minimum payment on your credit card bill, you pay a small percentage of the total amount you owe. This means you incur interest charges on the remaining amount. This can lead to a build-up of debt and hurt your credit score too.
So, ensure you pay off your credit card bill in full every month. If you are finding it hard to do so, it means you are spending more than you can afford. So, make sure you spend as per your income by creating a budget and do not overuse your credit card.
Making late payments
Paying your credit card bill later than the due date results in late fees. This can strain your finances for no reason. When you make late payments too often, this will become a part of your credit history and adversely affect your creditworthiness.
Avoid this by setting reminders or signing up for automatic payments. If the current billing cycle doesn’t work for you, you can also contact your issuer to see if your payment due date can be moved to a more convenient time.
Not utilising reward points
Many credit cards offer reward points and/or cashback on certain purchases. By not taking advantage of these, you are missing out on potential savings. To avoid this, understand the rewards programme and the terms of such deals in depth.
By knowing which purchases can save you money and swiping your credit card accordingly, you can maximise your savings.
Decrease in your credit limit
If your credit card issuer decreases your credit limit or doesn’t offer you a higher limit after one year of use, stop and ask yourself why. A higher limit allows you to build a better credit score and comes to your aid in emergencies.
Usually, those who pay credit card bills on time, use the card regularly, and have a fair credit utilisation ratio get a higher limit. So, if you are missing out on any of the above, it is time for you to change your usage habits.
Credit cards can be a great tool that can help you build your credit score and save big. However, incorrect use can lead to financial difficulties. With these warning signs in mind, you can ensure that you leverage your credit card to the best of your abilities.
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