Credit cards are a popular financial tool that can offer many benefits, such as building credit, providing relief for your budget, and earning rewards. However, it’s essential to use credit cards wisely and manage your usage correctly; otherwise, the opposite can happen, and the negative impacts on your creditworthiness can be significant. So, know the real meaning of credit cards.
7 common credit card mistakes
Here are 7 common credit card mistakes you should avoid if you want to maximise the benefits of credit cards while avoiding their risks.
- Late payment – Late credit card payments can have several negative consequences. Firstly, it can damage your credit score, making it difficult for you to obtain credit in the future. Secondly, credit card companies may charge you a late payment fee, which can add up over time and increase your overall debt. Thirdly, late payments can result in higher interest rates, which means you’ll end up paying more for the same purchases. Therefore, it’s important to always make your credit card payments on time to avoid these negative impacts.
- Regular minimum payments – Regular minimum payments may seem convenient but can lead to a long-term debt trap. When you pay only the minimum amount due on your credit card, you’re not paying off the entire balance, which means you’ll continue accumulating interest charges on the remaining balance. Over time, this can result in much larger debt and higher interest payments. It’s essential to pay off the entire balance each month or as much as possible to avoid getting stuck in a cycle of debt.
- Running high balances – High balances mean you’re using a large percentage of your available credit limit, which can harm your credit score. Credit utilisation is an essential factor in determining your creditworthiness. If you’re using too much of your available credit, it can signal to lenders that you’re overstretched and may not be able to repay your debts.
- Not aware of credit card terms – Being unaware of credit card terms can have negative consequences, such as not understanding interest rates, fees, and penalties. This can lead to unexpected charges and increased debt, which can harm your credit score and financial stability. Reading and understanding your credit card terms is crucial to avoid these negative impacts.
- A card that doesn’t fit – Choosing the wrong credit card can also have negative impacts. For example, if you choose a credit card that doesn’t suit your spending habits or lifestyle, you may end up paying unnecessary fees or missing out on rewards. Additionally, some credit cards may have high interest rates or annual fees, which can add up over time and increase your overall debt. Choosing a credit card that aligns with your needs and spending habits is crucial to maximise its benefits and avoid risks.
- Too many credit cards – Having too many credit cards can also be a mistake. While having multiple credit cards can offer more rewards and benefits, it can also lead to overspending, making it difficult to manage your finances and pay off your debts. Additionally, having several credit cards can increase the temptation to use them all, resulting in high balances, late payments, and damage to your credit score. It’s essential only to have a number of credit cards you can manage effectively and use responsibly.
- Cancelling a credit card – Cancelling a credit card can be a mistake for several reasons. Firstly, cancelling a credit card can reduce your available credit, affecting your credit utilisation ratio. Secondly, cancelling a credit card can also impact the average age of your credit accounts, which can also affect your credit score negatively. Lastly, cancelling a credit card can result in losing any rewards or benefits associated with that credit card, such as cashback or travel points. Therefore, thinking carefully before cancelling a credit is essential to avoid any negative impacts on your credit score and financial stability.
Conclusion
Credit cards like Kotak 811 credit cards can be helpful tools if used correctly. Still, there are several mistakes you should avoid, such as late payments, regular minimum payments, running high balances, not being aware of credit card terms, choosing the wrong card, having too many cards, and cancelling a credit card. Managing your credit card wisely is essential to maximise benefits and avoid risks.