Until sometimes back, applying for a credit card was a lengthy procedure. To actually obtain a credit card was considered to be some kind of a privilege. But things have changed significantly now and today, almost everyone holds a credit card. In this post I will teach you five things you should never do with your credit card.
Credit cards can be fascinating financial tools that provide the holder with tremendous purchasing power coupled with unmatched convenience and security – all wrapped in a couple of grams of plastic. So, it’s advisable that you use your credit card with extreme caution to avoid substantial financial problems and ensure your financial security doesn’t take a beating.
Credit card issuers provide a particular amount of credit available for the holder to borrow from time to time. All you’ve to do is strictly maintain the terms of your credit card agreement. This usually includes paying your dues on time, staying within the credit limit and not using your card strictly to purchase illegal things or commit fraud. Of course, you’ve to repay the purchases made on the credit card but the card issuer provides you with options to repay the balance over time.
In case you opt for paying over time, you need to pay the minimum monthly amount that’s due by the appropriate date of every month. Otherwise, penalties will be applied for late payments. Additionally, you’ll have to pay an interest on the balance you pay over a certain period.
When it comes to financial matters, your credit score plays a substantial role in your life and you’re never provided with any instruction manual on how to use your credit card wisely.
In this post, we’ve outlined 5 key things that you should never do with your credit card. Use these to avoid potential financial hazards and ensure you maintain a better credit score.
1. You Should Never Do With Your Skip Your Credit Card Payments
There are always some disadvantages associated with the advantages that you enjoy. Credit card issuers who lend you money (usually for a period of approximately 45 days, which is interest-free) and also give you rewards for the purchases you make charge a fee between 22-45% annually if you don’t make timely payments.
When you can’t afford to make your credit card payment within the due date, the worst thing is to let the bill go unpaid. Skipping the minimum payment will pave way for some unpleasant consequences. Most commonly, the card issuer will take actions such as charging a late fee, or communicating the incident to credit bureaus, if you keep the bill unpaid for more than 30 days past your due date.
In addition, the interest is applied on the whole outstanding amount and more importantly, it’s applied from the actual date of purchase, not from the start of the month. The late payment fees coupled with accruing interest rate can simply lead you to a debt trap.
What’s more, credit card issuers provide you with rewards and some kind of incentives depending on your bank and the type of card. These points will be revoked if you fail to pay the bill on time for a certain period. If late payments become a persistent issue for you, take proper precautionary measures by opting for the right card and setting up automatic payments and notifications.
However, if you’ve missed a single payment, consider paying the minimum amount due as soon as possible and communicating with the creditor to request a refund for the late fee.
2. Max Out Your Credit Card and NOT Pay It Off
Every credit card comes with a certain credit limit – the highest amount that you can use without any penalty. Credit card limits aren’t expected to be maxed out.
Maxing out your credit card refers that you’re utilizing more than the amount paid off by you, which can simply lead to late payments. When these two factors are merged, it can trigger a credit card’s penalty APR, costing you a substantial amount of money as interest.
It’s important to note that these interest rates are generally set at the maximum amount that a card issuer is able to charge you, reaching up to 29.99%. A significant number of negative things can happen if you max out your credit card.
Some of the major ones are:
- Your credit score will drop. A substantial part of your credit score – exactly 30% – is calculated on how much of your available credit limit you’re using. The higher you utilize your credit limit, the more your credit score will get hurt.
- You might experience a penalty APR. When you max out your credit card, it necessarily doesn’t mean that penalty rate will be applied. But it doesn’t help your chances. Card issuers typically generate a credit card’s APR only when a cardholder becomes defaulter for over 60 days.
- Purchase decline: Once you reach your credit limit, only an increase in the credit limit or a payment will enable you to make further purchases. This may simply lead you to a predicament if you’ve not taken the necessary measures.
Here’re some key tips to stop yourself from maxing out your credit limit:
- Develop an emergency fund: An emergency fund is a specific sum of money put aside in a different savings account. Once you’ve developed an emergency fund, it’ll prevent you from relying solely on your credit card in case of emergencies.
- Only utilize the card for exigencies: If you fail to develop the above habit, make sure that you only use your credit card in cases of true exigencies.
- Pay off your credit card as soon as you can: Develop a habit of paying off the card as soon as you make a purchase.
Keep in mind the above tips and have a proper plan in place to keep the balance within limit.
3. Sharing Card Information
There’s no arguing on the fact that credit cards come with enticing appeal of “buy now, pay later”, but properly managing your credit card and the subsequent bills can be quite difficult than what you actually thought.
With the advent of technology to make life comfortable, fraudulent activities to have increased that aim to deceive credit cardholders. You may keep your wallet extremely safe, but fraudsters can find ways to utilize your credit card without giving you a hint of it.
For instance, if you make a purchase by email or telephone by giving your credit card number, the number they might get passed onto a telemarketer by the merchant. The telemarketer might call you and seek an expression of interest in one of its favorite products as permission to charge your credit card.
Using a credit card needs stringent discipline because swiping for transactions can lead you to substantial financial hardship. There’re some things that you can avoid entirely and not sharing your card information is definitely one of them. You must not share your credit card information with anyone under any circumstances. This information includes your card number, security code, expiration date or the username together with the password to view the account online.
You should refrain from sharing this information in a public place as you never know who’s standing behind or close to you and taking notes.
4. Never Do This With Your Credit Card – Take a Cash Advance
Every financial decision significantly influences your credit score. You should remember that this score acts as the lifeline when you face any adverse financial situation. Taking cash advance may seem to be a useful option in case of an exigency when you require cash immediately. However, it can become quite expensive and you should use this as the last resort.
According to some people, taking a cash advance on their credit card is similar to taking a loan and it’ll affect their credit score negatively. But in reality, when you take out a cash advance through your credit card, these advances aren’t reported at all to the credit-reporting agencies.
Though there’re certain incidents when cash advances can hurt the credit score, if you can deal with them properly, they’ll have no to zero effect. Yet, it’s important to note that cash advances normally come with greater interest rates coupled with additional fees, which can trigger the outstanding balance on your account to grow fast, making it harder to keep pace with your monthly payments.
If you fail to make the payments on time or the balance continues to increase, there can be a negative impact on the credit report as well as on the credit scores. High amount of credit card debt will make you get considered as an undesirable candidate for banks and loans.
Additionally, people who take out high amount of cash advances are more likely to be considered as defaulter. Ideally, you should try to avoid taking cash advances altogether and contact your local financial institutions for small loans instead.
5. Mortgage Payments
Most of the times, paying your monthly mortgage amount through your credit card isn’t possible. This is because mortgage companies don’t encourage this method of paying. Actually, there are third-party companies who enable you to pay the mortgage installments that way. But that’ll normally lead you to pay much more because these services are pretty expensive.
In case you’re able to pay it with your high limit credit card, you’ll end up paying a higher interest rate at the end of the month. The scenario may become even worse if you fail to pay down your entire account balance anytime soon. In case you’re able to find a way to circumvent the mortgage servicer and pay the mortgage with your credit card, it’s still not a wise idea if you don’t plan to pay off your complete credit card balance every month.
You’re being charged with interest already on the mortgage, which would make paying additional interest on the credit card balance an expensive option and a financial burden that’s best avoided. Using your credit card this way would also lower the available credit amount on your card, which could lower your credit score. Mortgage loans are usually repaid between 15 and 30 years, depending on the mortgage terms.
When merging credit card debt with a mortgage, you’re going to pay the credit card bill for the whole duration of the mortgage. If you find it difficult to pay your mortgage installment for a particular month, try requesting your mortgage lender for a grace period. You can also look for alternative loan options such as personal loans or refinancing.
Things You Should Never Do With Your Credit Card: Conclusion
Avoiding debt is perhaps the best way to get prepared for a safe financial future. However, many people risk their financial freedom by landing into credit card debt. If you can use your credit card wisely, it can provide you with multitude of benefits. It can help with building credit and your online protecting purchases. I’ve found it helps with purchasing costly items without the hassle of carrying bundles of cash. Yet, when used carelessly, the same can act as a high-interest loan rather than a useful cash substitute.
Sometimes, it becomes extremely difficult when a credit card debt gets build up. To avoid this hassle, you must use your credit card judiciously and take it out only for emergency purposes. In addition, you should only purchase things through the card that you can afford to pay. Pay these all when the bill becomes due.
Simply put, credit cards can be highly beneficial instruments to build up credit. They demonstrate your future lenders that you’re creditworthy. However, holding a credit card is a great responsibility that you must take absolutely seriously. Don’t ever make the biggest mistake that many do – saying “I’ll chalk something out later.” That’s when you’re leading yourself into trouble.