A credit card is definitely an addition to your financial assets, but did you know that this little plastic card can cost you a pretty penny if not used in a disciplined way. The wrong usage of credit cards can turn the boons into bane, negatively affect your credit score and land you into major debts. While credit playing cards deliver a number of advantages for his or her customers, they will trigger important dangers for these missing monetary self-discipline. If dealt with carelessly, they will adversely affect your monetary well being for a very long time to time.
Here are 7 warning signs that indicate you are using credit cards the wrong way:
1. Maintaining Credit Utilisation Ratio (CUR)
CUR is the proportion of your total credit card limit utilised by you. Given that lenders generally consider consumers with a credit utilisation ratio of over 30 per cent as credit hungry, credit bureaus tend to pull down your credit score by some points when you breach this mark.
2. Constantly repaying the Minimal Due Solely
Many credit cardholders make a mistaken assumption that repaying solely the minimal quantity due would save them from paying heavy finance prices. Repaying the minimal quantity due would solely prevent from incurring late cost prices and taking a success in your credit rating. You will nonetheless incur hefty finance prices of 23%-52% p.a. on the unpaid part of your credit card invoice. Moreover, non-repayment of credit card dues results in the withdrawal of the interest-free interval on recent card transactions till your complete unpaid part is paid off.
In case you’re unable to repay your complete credit card dues, convert the unpayable part into EMIs. The curiosity rate of EMI conversions are a lot decrease than finance prices levied on unpaid dues. This choice provide compensation tenures of 3 months to 5 years, permitting card holders to repay unpayable credit card invoice at a lot decrease curiosity rate in smaller tranches as per their compensation capability. Moreover, choosing this route even reinstates the profit of interest-free interval on credit playing cards.
3. Missing Regular Payments
Credit Card users are required to make the minimum payment on or before the due date every month. If you are missing regular payments because you are not left with enough to clear the dues, you are surely using the card more than you should. Doing so cannot just attract a penalty but can also hurt your credit score.
4. Not paying attention to Reward Point’s Expiry
Card issuers attract more consumers by extending attractive reward points on credit cards. While some allow the option to adjust accumulated reward points against the outstanding bill of the credit card, others allow redemption for availing pre-specified services and products, such as gift vouchers, airline tickets, consumer goods, fuel, etc. However, given that the reward points of most credit cards come with a pre-determined expiry period of generally 2-3 years, you must avoid ignoring their expiry, as this could result in losing out on the accumulated reward points’ benefits.
5. Making Cash Withdrawals through Credit Card
Cash withdrawals utilizing credit playing cards appeal to money withdrawal charges of as much as 3.5% of the withdrawal quantity. Additionally, card issuers additionally levy finance prices of as much as 52% p.a. proper from the withdrawal day till their compensation. Hence, attempt to keep away from making money withdrawals by means of credit playing cards to the extent doable. In case it turns into completely unavoidable, be sure you repay your complete withdrawn quantity as early as doable. Doing so would cut back extra curiosity price incurred within the kind of finance prices. Withdrawing cash though your credit card attracts not one but twin charges. Cash advance fee of as high as 3.5 per cent of the withdrawn amount, and hefty finance charges ranging around 23-49 per cent p.a. are levied, right from the day of such withdrawal until the repayment is made. Incurring these two charges together can burn a deep hole in your pocket, especially if done frequently.
6. Turning down Credit restrict Enhancement
Many credit cardholders usually keep away from growing their credit card restrict owing to the worry of overspending and the chance of touchdown right into a debt lure. However, observe that if judiciously used, this can assist you enhance your monetary well being. Hence, you could take such credit restrict enhancement provides into consideration each time it’s provided to you by the card issuer.
Doing so would improve your monetary capability to face monetary emergencies or make increased spends throughout festivals or any necessary event. Also, keep in mind that an enhanced credit restrict can cut back your CUR, which can assist enhance your credit rating and thereby, your future mortgage and credit card eligibility.
7. Frequent Balance Transfer
If you are trying to reduce your debt burden, one of the best ways to use a credit card is to use the balance transfer facility and switch to another card with a lower interest rate. Know that balance transfer is not a permanent solution to the debt problem but only a way to delay the problem. Use this facility, and it can be instrumental but overusing it can inevitably result in grave consequences.