Depending on the way you use your credit cards, they can either be your friend or foe. They say credit cards are necessary evils; if you use them in an appropriate manner they can be your best friends in helping your manage your finances and your credit score but if you misuse them, they will soon become nasty little debt generators. Collecting points on your credit card is one thing but charging it till its limit and not being able to make significant payments can have a drastic impact on your credit rating. The entire lending industry is ruled by credit and anyone who wants to borrow money or purchase a car or pay off debt will require maintaining a positive credit rating.
Nevertheless, life always throws us curve balls and hence we need to ensure that we’re prepared for the worst. If you own a credit card, you have to steer clear from the most common credit card blunders which can adversely impact your score. Here are some such mistakes to avoid.
#1: Making only the minimum payments
When you pay only the minimums on your credit card, this not only increases the total time that you take to pay off your balance but also raises the interest rate that you will pay on the card. Hence, financial experts always recommend you to pay more than the minimum amount. Increase the monthly installment towards your credit card and repay the balance sooner at a low cost.
#2: Cancelling your credit card when you’re not able to handle it
Before you cancel your credit card out of frustration, find out if cancelling a credit card can damage your credit score. Experts suggest that by canceling your credit card, you can hardly go anywhere with the issuer. This step costs your credit score by a number of points as you end up increasing your credit utilization ratio. Hence you should leave your credit card accounts open unless you’re dead-sure that closing them won’t decrease your score.
#3: Paying your cards late
Don’t make the mistake of paying your credit cards after the due dates pass. There are many who forget their actual due dates and end up accruing late fees and penalties which unnecessarily add on to their already high monthly payments. So, you should pay your monthly installments on time and even try automating your accounts if you tend to forget the dates often.
#4: Ignoring the credit card statement
In case you’re someone who doesn’t pay too much attention to your credit card billing statement, there will be higher chances of missing the due date. You could even end up missing some vital announcements regarding any further changes to the terms of your credit card. Moreover, the billing statement is the first place to identify any fraudulent charges on your account. Read it carefully to spot such thefts.
#5: Maxing out the card
Did you know that charging the balance of your credit card by more than 30% of your credit limit can have a drastic impact on your score? When you get closer to the credit limit, this increases the risk of accumulating penalty rates and over-the-limit fees. So, you have to maintain a decent balance on your credit card to have a healthy score.
Therefore, if you don’t want to tarnish your credit score and mar your future opportunities to borrow a home loan at the best rate, steer clear from all the above mentioned credit card mistakes.