Credit cards are the best alternative to cash when it comes to making purchases and payments. They offer a super convenient way to pay for products or services whether in-store or online. Along with that, consumers are also able to earn free rewards, and benefits when spending money on day-to-day essentials and utilities using their cards. But credit cards can cost you money in terms of interest and build debt when not managed carefully. Carrying balances and making late payments are some basic reasons for damaging credit scores.
In this blog post, we will highlight common credit card mistakes and how you can avoid them to get the most out of your credit card without building debt.
Ignoring Your Credit Card Agreement
A credit card agreement looks complex to go through. But it is an important legal document that contains basic details about the card like interest rate, fees, credit limit, benefits and rewards you can enjoy, payment due date and terms & conditions, etc. The agreement also indicates how the interest on your card will be calculated and the conditions you should follow to use your card effectively. Reading the agreement carefully helps you use your card in the best way possible without running your credit and carrying a balance.
Misunderstanding Interest
Interest is the fee of borrowing money using your card. But a credit card user can avoid interest by making a full payment every month before the due date. When a user failed to pay off the balance and carries it to the next month, interest is charged on the balance as per mentioned interest rate in the agreement. Some credit cards come with different rates based on the type of transactions made through the card like a balance transfer or cash advance. This is the reason; it is important to read the agreement carefully to understand the interest rate before you make any transaction. You can also check with the customer services department to ask about the interest rates and other fees.
Reaching Your Monthly Credit Limit
When your credit card application is approved, you are assigned a particular credit limit you can use every month. And hitting your credit limit is one of the major credit card mistakes you should avoid. Basically, the credit limit is the maximum amount your card can be used for. As you are allowed for that limit, doing this can hurt your credit scores. According to experts, one should keep his/her credit utilization below 30% of the assigned limit. Using a lower credit limit helps you improve your credit score and avoid carrying a balance. Planning ahead of time and creating a budget are the best ways to keep your card usage as lower as possible.
Making Late Payments
Missing out on monthly payments comes with several penalties. That’s why missing out on monthly payments or making late payments is another costly credit card mistake everyone should avoid. As payment history is one of the vital factors when it comes to credit scoring, when you pay your balance after due dates, it harms your credit scores. Some card providers also charge a particular fee for late payments. Not only this, missing out on monthly payments can also lead you to interest. To avoid all such costs and penalties, you should consider automatic payments or set reminders for monthly payments so you can pay off your balance before the due date. You can also use the credit card app to see the payment details and due date to make on-time payments without getting late.
Sticking to Minimum Payments
The smallest amount you must need to pay every month towards your balance is the minimum payment. A user needs to make at least minimum monthly payments to remain in good standing if he/she is unable to pay the balance in full. This helps a user avoid extra charges and fees while keeping the card in use. But when a user sticks to minimum payments and doesn’t pay off the balance in full, it can cause building credit card debt and also take longer to pay down the balance. An agreed interest rate is also charged by the company on the remaining portion of the balance. Sticking to minimum monthly payments is one of the worst mistakes credit card users must avoid.
Not Comparing Credit Card Offer Before Applying
Getting a credit card is one of the major financial commitments we make to pay off the balance before the due date that we use via credit card. This means it is important to shop around and compare different credit card offers to choose the right option that fits your current financial situation and needs. Most people don’t compare credit cards and accept the very first offer they are presented with. Doing some research and using comparison sites like credit card compare NZ helps you find out the best offer with enticing perks and benefits.
Not Reporting a Lost or Stolen Card
Whether your card is stolen or your credit card details are compromised, it is your liability to report your card to the card provider as soon as possible. When you report your stolen or lost card faster to the company, you will not be responsible for any charges or fraudulent activities made through your card. when you report your card as lost or stolen, the card issuer usually waives your liability for any usage right after your report. Whenever your card is misplaced, be quick to file a report to stay safe and protected from bad guys.
Conclusion
A credit card is a great financial tool that offers the convenience of making payments and purchases from the comfort of your home. One can also use his card for in-store shopping and POS payments. However, avoiding the above-mentioned credit card mistakes is important to reap the undeniable advantages of credit cards instead of building debt. You should also swipe your card for the stuff you can easily afford to pay at the end of the month. Otherwise, you will be building a huge wall of credit card debt.
For more information and tips to help you choose the best credit card in NZ, visit our website Credit Cards Compare.
