Credit cards can prove to be great for you if you know how to maximise the benefits of having a credit card. Most people in India are unaware of the benefits that a credit card brings and tend to ignore them. Nevertheless, not just benefits, people are also ignorant about certain credit card mistakes that they commit in daily life, which ultimately come to haunt them at a later point in life. Credit cards can be your best friend and your best enemy as well in matters of money. You should be educated enough to understand the maths that goes behind credit card algorithms. Even educated people, at times, are not able to gauge the interest rates and repayments on their credit cards. Thus, it’s almost necessary to have a bit of a sound financial base before getting a credit card. In India, a lot of people have credit cards but only pay unnecessary interests rate on them because they are never told what they can do to save money using credit cards. Here in this blog, we have covered the six most basic mistakes that people tend to commit with credit cards.
1. Missing Payments
Missing a payment is among the gravest sins that you can commit if your credit cards. It hurts your credit score, and you might not be eligible for loans or get loans at a higher interest rate in future with your bank if you continue missing credit card payments on a regular basis. There is a common misconception among people that missing a few payments would not hurt anyone, and they can always cover it up in future. It is one of the most basic financial mistakes that people commit with credit cards.
2. Paying the Minimum Due Amount
You might be thinking that if I pay my minimum due amount at the end of every month, then I can’t commit a credit card mistake at all. Let me just tell you that by thinking this, you are already committing a credit card mistake that is quite common among people. The total due amount that you have is always carried forward, and the interest is levied on that amount. It means that in future, you will end up paying more if you do not go over the minimum due payment every month.
3. Being Ignorant About Credit Card Statements
If you own a credit card, then you should definitely go through your credit card statement at the end of every month. Often there are many charges that you may not be aware of, and they are only mentioned in your credit card statement. If you go through your statement, you will be able to analyse the amount of interest that you have to pay and the total due amount that you are carrying forward.
4. Withdrawing Cash by Using Credit Cards
One of the silliest mistakes that you can commit with credit cards is using them for withdrawing cash from ATM machines. One should never use a credit card to withdraw unless it’s an emergency. Banks levy heavy interest rates on cash withdrawn using credit cards which is surely not good for people who are hoping to save money by using credit cards.
5. Not Maintaining an Ideal Credit Utilisation Ratio
The ideal credit utilisation ratio is debatable, but most banks consider it to be 50% of the total allotted credit value on a credit card. Your credit score depends on several factors like repayments, monthly income, credit card history, sanctioned loans and credit utilisation ratio. Among these factors, CUR is the most commonly ignored one. You should never ignore the CUR as it can hurt your credit score, which will have an effect on your future loans.
6. Not Selecting the Right Credit Card
All the commercial banks in India offer various types of credit cards for people with different needs. For those who travel a lot, there are credit cards which can make them get exclusive discounts on airfare and much more. Similarly, there is a credit card for almost all needs of people. You must carefully go through all the credit card options available to you before selecting one to make the right choice.