You either love Credit Cards or hate Credit Cards but you can never ignore Credit Cards. Ever since Credit Cards have become a popular mode of payment, there have been extremely contrasting views about them. While some just adore Credit Cards for allowing them to shop now and pay later, some consider Credit Cards to be a stairway to massive debts. We believe it is unfair to deem Credit Cards as good or evil as its implications depend on how an individual uses a Credit Card. Smart Credit Card users know how to use Credit Cards to their benefit by simply avoiding bad Credit Card habits.
Bad Credit Card habits can leave you reeling under a huge pile of debt and can have adverse effects on your Credit Score. It is our duty to help you identify these bad Credit Card habits that you need to shun right away. So hop on and see what bad habits you need to avoid as a Credit Card user.
Carrying Balance Forward
The most common bad habit of a lot of Credit Card users is swiping more than what they can pay for. And when you can’t settle the Credit Card bill within the payment timeframe, you carry forward a balance to the next cycle where it is subjected to high-interest rates. Thus, you end up paying hefty interest amounts on the average balance. And if you continue to just pay off the minimum amount on every cycle, the interest on your balance will keep increasing and so will your debt. So, the mantra for Credit Card swiping is, if you cannot pay the entire amount on time then don’t swipe it.
High Credit Utilisation
When you carry a balance of more than 30% of your credit limit, your credit utilisation is considered to be high. And high credit utilisation leads to a bad Credit Score. In order to avoid a dent in your Credit Score, make sure your credit utilisation is less than 30% of the credit limit. If you carry forward a balance of more than 30% of the credit limit to the next cycle, then make sure that you partially pay off the bills (if not entirely) in order to lower the credit utilisation ratio, before the next cycle. If you constantly find your credit utilisation rate is high, then request the bank to increase your credit limit.
Missing due dates or settling the bill post the due date not just leads to a hefty fine in the form of late payment fees but also results in lowering your Credit Score. Late payment history stays on your credit report for 7 years and can affect your future credit needs. It is advisable to automate Credit Card payments every month on or before the due date.
Collecting Credit Cards
With a new Credit Card being launched almost every other day, the exciting offers and rewards might tempt you to apply for them. It is better to exercise restraint instead of turning into a Credit Card collector as it becomes extremely difficult to manage the balance on each Credit Card while trying to remember their payment due dates, interest rates, minimum amount payable, etc. Also, if you don’t maintain a six-month gap between applying for two Credit Cards, your Credit Score will bear the brunt.
Relying too much on Balance Transfer
A balance transfer is a boon for people who want to close their Credit Card debts with 0% APR on the balance. If you are unable to pay the balance within the 0% APR period, the interest rate increases and so does your debt. But some people think they are geniuses by successfully avoiding the increase in annual percentage rate by opting for yet another balance transfer. These geniuses who play this balance transfer game forget that the aim of a balance transfer is to clear the debt. You can keep hopping from one Credit Card to another using a balance transfer, but eventually, the debt will catch hold of you. So, if you are not sure that you can pay the entire balance within the 0% APR period, you might want to reconsider whether the balance transfer option can really save you from paying the interest on your balance.
Additional Reading: Balance Transfer Between Credit Cards: Things To Consider
Now that you have learned the five bad habits of Credit Card usage and how to avoid them, be a responsible Credit Card user and swipe judiciously!